Ann: Investor Update Call, page-7

Honestly, I was shocked by the level of honesty and BS in that webinar I watched last night (thanks for posting). Confirms some of the problems and concerns that has driven the price south imo, and will probably continue to do so I'm sorry to say. My thoughts in no particular order...

Wyloo Con-note

While it's good Charles was clear Wyloo has bought a con-note repayable at Wyloo's discretion, not invested into AHS at $5.50/share, he completely misrepresented the nature and risk of that loan imo. Kept saying Yangibana was "ringfenced" from the Wyloo debt because future project development debt like NAIF and whoever will be senior secured above junior Wyloo loan. Yangibana and all HAS assets will be ringfenced for the Senior Debt over everybody else, including HAS shareholders... he is talking to HAS shareholders, they want to know their risks not the ranking of creditors to get repaid in case HAS goes into receivership like so many other failed developers.

If Wyloo demand their $210M (inc capitalised interest back in 2.5 years) and HAS does not pay up in time, Wyloo has the right to place HAS into liquidation and try to get their money back value left over after the senior debt has been repaid from assets. Usually there is no value left after senior debt has been repaid, but if Yangibana is profitable there might be a chance for Wyloo to be made whole including it's senior security over NEO shares. Shareholders would be wiped out for sure.


If Yangibana was profitable and valuable then liquidation will not happen. HAS will issue whatever new shares it has to so it can repay Wyloo and move on. Trouble is, the share price will tank as the market recognises a distressed >$100M CR coming and get out ahead of the dilution. This likley turns into a 'con-note death spiral' because the cheaper share price gets, the more shares and dilution to repay Wyloo, meaning shares keep falling as people try to escape an ever more dilutionary CR ahead.

How cheap shares need to get before a white knight or Wyloo agree to a placement that will repay Wyloo is uncertain. Much depends on the price of REO and Yangibana's development stage (are they producing cash or not?). Charles says Yangi will be making cash in 2.5 years so repaying Wyloo will not be a problem, but that is impossible imho. They are months away from even finalising capex, opex and the projects new financial situation. Then they have to get the extra $150M finance locked in, the extra ~$200M equity raise locked in to hit FID and continue the build. The bene plant, hydro plant etc will take a lot of time to build, commission and ramp up. I don;t even see that happening by mid 2025. Even if it does, their will be debt covenants meaning cash cannot be distributed to HAS until a certain amount of debt has been repaid or atleast put aside into a debt repayment off-set account. Lenders are very careful to make sure they are safe, they want their money and interest back.

So repaying Wyloo if they demand it mid 2025 relies on the status of Yangi, REO price and market outlook, HAS share price and NEO share price. This webinar is the day after Tesla drops news their next generation of EV motor will be run by RE-Free magnets, not RE-magnets... No NdPr. It may not come to pass, or not for some years, but the risk to both HAS and NEO share price is real and present now. If RE magnets get relegated to bespoke applications and the market ends up oversupplied NdPr and RE-magnets, then HAS and NEO share prices are going down like a Coles advert. Twiggy rightly changes his mind on HAS and RE investments, demands his money back... see above.

RE-Magnet Substitution Risk

See my post on ARU for some balanced opinion on the elevated risk and one potential technology Tesla may be looking at to replaced RE-magnets int he permanent magnet motors... https://hotcopper.com.au/posts/66573759/single The outcome is uncertain, but the risk is very real and existential. I cannot see this new-tech substitution risk discount being priced into RE stocks coming out for years. Only time will tell.

Valuation of NEO

Having considered the strategic decision to by NEO and Charles discussion around it I am somewhat appalled. He is now paying a global consultancy to research what NEo is really worth, 6 months AFTER buying 20% in a spontaneous take it or leave it competitive auction. Surely you want to know what a company is really worth before borrowing $150M to buy it Now he is talking about maybe acquiring the other 80% to complete his mine-to-magnet vertically integrated dream Talk about the reverse takeover king using cheap falling script, because nobody is going to lend him more money chasing that pipe dream imho..

Finance Debt Outstanding
He reckons they did a Nordic Bond road trip last year and got commitments for US$300m odd and heading towards mid US$450's book build... but walked away because the 12% interest was too expensive I call BS... 12% for this type of project debt in that market, in this historically volatile and higher risk commodity is very reasonable. STA in WA with their $150 NAIF debt paid 12% for Nordic bonds a couple of years ago when int rates were rock bottom, SFX in WA with their $165M NAIF debt paid 12% last year to PE. In short, if HAS could have got the funding locked in at 12% Nordic bonds they would-should have grabbed it with both hands and not be in the position they are now. No question in my mind at all... HAS walked away

So no off-take, other lenders all walking away, all after that shocking and in my substantiated opinion inaccurate Feb'22 DFS? Then they go buy NEO with borrowed money to try and leverage an off-taker into doing a deal with HAS so they can lock in product sales, prices and satisfy lenders etc. No wonder the market has sold them down from $6 to $2.50 last 12 months. It looks like a trainwreck with Charles drowning not waving to investors that "HAS isn't a short-term investment", "appreciate your patience as we go through this journey"...

It looks to me they have got themselves caught up in escalating capex and opex against insufficient reveune unless they assume absurdly high NdPr prices. Looks like they are having trouble getting off-take agreements at the right price to allow finance to be locked in. Looks like Tesla shining a light on RE-Magnet substitution risk couldn't have come at a worse time, reminding lenders and equity investors of the risk investing in high cost, low margin start-ups years away from full production.

I've got no skin in the game, don't care either way, actually thought at $3 that the bad news may have already been priced in by the market before retail was fully explained the situation. Changed my mind after watching that webinar. Sometimes it's better to be thought of as in trouble with off-take, finance, debt overhang and cum-raise than to open your mouth and prove it...

GLTAH

My posts are only for entertainment purposes, is my honest opinion but could be riddle with errors, please DYOR etc, etc