Gaurav Sodhi has excellent analysis over the last 6 months, found in the intelligent investor, including the terms of the cashflow structuring with JV partners. His most recent update was February 20, and points out that applying the effects of the cashflow agreement to the reported production costs at Onslow, results in a breakeven cost of US$57/tonne.
All the hysteria on the TA discussion board about debt is unfounded, Onslow will print cash during the period of de-leveraging as long as they can move the nameplate tonnage. I have no doubt that parties that have short positions are taking full advantage of the fear and shouting very loudly about the unserviceability of the debt without correctly representing it. The debt can very clearly be serviced with operational cashflow without a CR, and it would be advisable to examine the biases of anyone championing this pathway.
The risk with MIN is not debt, it is project feasibility. At the end of the day it is a low-grade marginal mine, entirely dependant on the four pillars of the project being executed well: Crushing, Automated Trucks, The road, and the trans-shippers. 3/4 pillars appears to be sound currently; If the road is not able to withstand the (significant) loads in its current form, then the project viability comes into question. The topic is particularly sensitive due to the governance issues and lack of judgement demonstrated by CE and the board.
However, at the end of the day, management have been quite clear the the road’s issues are resolvable. It is up to each investor to weigh their confidence in this statement.
If the road works, the debt is serviceable, and it’s a bargain at this price.
if the road doesn’t work, things get quite tricky - the mine is marginal economically, so further large scale infrastructure investment may have extremely limited returns.
Worth noting that even in this case, the mining services division alone is worth around $36, so current prices would indicate Onslow is a net-liability to the company.
MIN Price at posting:
$21.15 Sentiment: None Disclosure: Held
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