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70.0¢ mallee resources limited

Kalenn.....very many thanks for your comprehensive post above....

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cherryburn

1,098 Posts.

182

01/07/22

18:21

Post #: 62327022
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Originally posted by Kalenn: ↑

...and another way of valuing the deal...our starting point: MYL had approximately $30M in assets, half of which were still caught in Myanmar.

Where are MYL now?: They have walked away with existing shareholders ending up with approximately 50% (the other 50% owned by Hartree, those coming on board with the upcoming capital raising and the previous owners of the Melba Flats tenements which MYL are buying with equity) of a Nickel sulphide operation that will be much sought after by end users as they will end up 100% green and carbon free. That plant, built from scratch, and the tenements/orebodies, would cost far more than the value of the project capitalised at 70c per share. Keep in mind the plant was run during a financially stressed start up at 75% so with good management and the benefit of past experience that should make start up smooth. Once running successfully at nameplate and assuming nickel remains a sought after metal during the de-carbonisation push, this project is possibly worth $2-$3 in a takeover scenario.

Offtake via Hartree means a partner that wants to see MYL succeed as they are substantial equity owners in the project. Hedging is modest and probably only sufficient to cover debt repayment if nickel drops precipitously (intelligent). Exploration upside is very exciting and there is plenty of scope to expand the resource beyond the current numbers, perhaps significantly beyond.

Mallee will likely be making US$10,000 per tonne free cash out of production at an absolute minimum (probably a lot more) and at nameplate that will be 9000t per year plus any extra MYL can squeeze out of the plant (or build in with expansion). This equates to A$130M or 31c per share pre tax etc income. Nameplate is predicted by management to occur within 12 months. The market is reputed to be forward looking.

So, we have gone from having a bank balance that would have equated to a few cents per share to a company that could end up being worth a few dollars per share in a relatively short period of time. Given industry average AISCs are around $12,000 per tonne and today Nickel is around US$24,000 per tonne the payback period for buying in the capital raise is likely to be 2 to 3 years. That is a serious potential return. I want a few more dud deals like this.

Others have mentioned that it will be interesting to see who takes up what in the capital raise and I agree but I also think the really important factor is that we get as much as possible of the desired uptake to fund this project well. It will be interesting to see if one Mark Creasy buys additional shares. It would also be VERY nice to see the Myanmar money turn up in the next few months while we need it the most. I will be down at Avebury for a site visit within a week.

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Kalenn.....very many thanks for your comprehensive post above. I note however that the price of nickel is on the slide at present and it will be interesting to see where the price settles once China is back in full mode. I trust that you have a fruitful visit to Avebury next week and I will be interested for your views on the potential for expansion of the resource both within the original tenement and the new EL's granted. Travel well.

MYL Price at posting: 70.0¢ Sentiment: Buy Disclosure: Held
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