HAV (ASX) Ann: Vote To Have Your Say On Havilahs Transformation Opportunity

Originally posted by Clark888 ↑

"In hindsight North Portia could be a good indication of what is possible to achieve.

I don't think it was necessarily a bad deal, it realised some funds, the deal was not negotiated well in the first instance but it sold and HAV got paid, argue over whether they got screwed but it was positive for HAV"

@peterbax

You are right, it was not negotiated well in the first instance.

It also did not improve with the revision, in my opinion, based on the following analysis (see tables A and B below).

Based on my calculations Havilah did not recover all its historical costs under the revised deal (discounted consideration), so really all Havilah got from selling Portia/North Portia was a NSR royalty going forward of 1.25%.

I have said it before, CMC was playing Survivor with HAV Management: Outwit, Outplay, Outlast.

That one milestone in the original CMC deal, was like a large millstone hung around our neck.

A. Take a look at my analysis of the CMC agreement metrics (revised and original).

Column 1 Column 2 Column 3 Column 4

1 Payment

Revised Deal $million

Original Deal $million

Delta

2 1st payment #

$1.0

$1.0

-

3 2nd payment #

$2.0

$3.5

$(1.5) million

4 3rd payment #

$4.0

$3.5

$0.5 million

5 Final payment

$3.8

$5.5

$(1.7) million

6 Consideration

$10.8

$13.5

$(2.7) million

7

8 NSR royalty

1.5%

2.0%

(0.5)%

9 NSR increased royalty

Nil%

3.25%

(3.25)%

10 Guaranteed payments per quarter, from 30 November 2020

Nil

$0.3 million

($0.3) million

11

# cash monies actually received by Havilah into its bank account.

The Portia rehabilitation bond which released Havilah’s $1.2 million in bank guarantee obligations does not form part of the ‘consideration received’ in Note 27 of the 2018 Annual Report, because it was and will never be received by Havilah as cash. Correct me if I am wrong.

The original ‘consideration received’ was never $14.7 million, it was $13.5 million ($1.0 million plus $12.5 million). See Note 27(a) of the 2018 Annual Report, including footnote 1.

Likewise, the revised ‘consideration received’ will not be $12.0 million, it is $10.8 million.

B. Now take a look at my analysis for the Portia/North Portia divestment calculation, it looks specifically at the historical back costs:

Column 1 Column 2 Column 3 Column 4

1

Revised Deal (Undiscounted consideration) $million

Original Deal (Undiscounted consideration) $million

Revised Deal (Discounted consideration ##) $million

2 Consideration

$10.800

$13.500

$10.902##

3

4 Permitting costs incurred (Note 27)

$(0.718)

$(0.718)

In above number

5 Net assets disposed of (Note 27)

$(5.277)

$(5.277)

$(5.277)

6 Original gain on disposal (Note 27)

$5.625

7

8 Reduction in consideration

-

-

$(2.527)

9 Mine development expenditure that was impaired during FY2017 (Note 7b) ###

$(4.153)

$(4.153)

$(4.153)

10 Revised (loss)/gain on disposal (my calculations)

$0.670

$3.352

$(1.055)

Note: all numbers have been sourced from the 2018 Annual Report and/or 31 January 2019 Half-Year Interim Report.

## The consideration receivable of $12.5 million had been discounted by Havilah to net present value in accordance with Australian Accounting Standards, see Note 27 of the 2018 Annual Report (specifically footnote 1).

### Mine development expenditure impaired during FY2017 (i.e. it was expensed in the income statement when it was impaired. But shareholders’ money was originally spent on it, so I have included it in my calculation to get an accurate representation of the total gain or loss on disposal of Portia/North Portia to CMC).

In my opinion, under the revised CMC deal all the historical costs spent (net assets disposed of + mine development expenditure on Portia and North Portia) were NOT recovered under the revised deal (discounted consideration).

C. Reduction in NSR Royalty from 2% to 1.5%
As part of the revised CMC deal, Havilah agreed to accept a reduced royalty from CMC for metal sales from the Mining Lease. This was the reason given in the ASX Media Release dated 8 April 2019 (1st paragraph on page 2).

“It is important to note that the metallurgical results for North Portia and updated economic modelling indicate that it would be challenging for Havilah to raise the project development capital required for the development of North Portia. Accordingly, in recognition of the challenges presented by this project, Havilah has agreed to accept a reduced royalty from CMC for metal sales from the ML.”

Even though Havilah had sold Portia/North Portia to CMC, did Havilah still retain the financing risk/ commodity price risk for this mine? Surely that was CMC’s problem. Somehow the person or persons who re-negotiated this revised deal made it Havilah’s.

So my question is, when metal prices recover and CMC is making mega profits, is there a mechanism for Havilah to claw back the NSR royalties it has given up?

Cheers

These are only my thoughts and it does not constitute investment advice. Before acting on any information you read and before making any financial or investment decisions, you should always consult your advisor(s) or other relevant professional experts.

Expand

Lost track of the posts made here the last couple of months or so, so not sure if this has been discussed, but looks like a little bit of activity on the Portia/North Portia front.

Benagerie Gold and Copper appear to be hiring. 5 jobs listed on Seek:

https://www.seek.com.au/jobs?advertiserid=43176177

Including a mine surveyor: https://www.seek.com.au/job/3982429...esttoken=93d90de6-52f1-4141-bbe3-c133ecbce5e6

"Portia Open Pit Gold Mine has been developed with a cutback pending, followed by the North Portia Project. Coarse gold is found at the top of the ore zone in oxide and a copper gold concentrate will be produced when mining the fresh ore below the Saprolite. The treatment plant is capable of processing up to 1.0MTPA. A further expansion in currently underway. On the mining lease there are a number of other prospective areas which require further exploration and resource delineation which will commence shortly."

CR is probably inevitable. Question is whether it'll be enough to get them to Nth Portia royalties and whether those royalties are now enough to at least cover admin (or a potentially reduced admin).

Also, should the 249D be successful, I wonder if incoming directors will take a look at who negotiated these deals (Bergen, Nth Portia divestment & GFG SSA) these last 3 years.

(20min delay)
Last 17.0¢		Change -0.010(5.56%)		Mkt cap ! $53.82M

Open	High	Low	Value	Volume
17.0¢	17.0¢	16.5¢	$65.55K	388.3K

No.	Vol.	Price($)
1	186665	0.170
2	28515	0.165
2	21875	0.160
3	112258	0.155
4	116006	0.150

Price($)	Vol.	No.
0.180	50000	1
0.190	92473	1
0.200	100000	1
0.210	82412	3
0.220	610000	1

Ann: Vote To Have Your Say On Havilahs Transformation Opportunity, page-57

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	Column 1	Column 2	Column 3	Column 4
1	Payment	Revised Deal $million	Original Deal $million	Delta
2	1st payment #	$1.0	$1.0	-
3	2nd payment #	$2.0	$3.5	$(1.5) million
4	3rd payment #	$4.0	$3.5	$0.5 million
5	Final payment	$3.8	$5.5	$(1.7) million
6	Consideration	$10.8	$13.5	$(2.7) million
7
8	NSR royalty	1.5%	2.0%	(0.5)%
9	NSR increased royalty	Nil%	3.25%	(3.25)%
10	Guaranteed payments per quarter, from 30 November 2020	Nil	$0.3 million	($0.3) million
11

	Column 1	Column 2	Column 3	Column 4
1		Revised Deal (Undiscounted consideration) $million	Original Deal (Undiscounted consideration) $million	Revised Deal (Discounted consideration ##) $million
2	Consideration	$10.800	$13.500	$10.902##
3
4	Permitting costs incurred (Note 27)	$(0.718)	$(0.718)	In above number
5	Net assets disposed of (Note 27)	$(5.277)	$(5.277)	$(5.277)
6	Original gain on disposal (Note 27)			$5.625
7
8	Reduction in consideration	-	-	$(2.527)
9	Mine development expenditure that was impaired during FY2017 (Note 7b) ###	$(4.153)	$(4.153)	$(4.153)
10	Revised (loss)/gain on disposal (my calculations)	$0.670	$3.352	$(1.055)

Ann: Vote To Have Your Say On Havilahs Transformation Opportunity, page-57

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