Originally posted by RED328
@THE squash
Considering that your discussion with Ian Buckhorn mentioned intention to replicate in some form the original Herron & Vale deal, I thought it appropriate to attach links and information on the deal done with Vale in 2005.
The following information relates to the Herron Resources & Vale farm in joint venture for development of the KNP Nickel project
This is the headline nuts and bolts summary of the deal.
I have also attached the reference document for your perusal should you wish.
http://www.heronresources.com.au/downloads/reports/quarterly/hrrqr2005_jun.pdf
RED
HERON RESOURCES LIMITED 1. SUMMARY Inco Nickel Laterite Joint Venture On 30 July 2005, Heron Resources Limited signed a definitive farm-in and joint venture agreement with Inco Limited affiliates Inco Australia Limited Partnership and Inco Resources (Australia) Pty Limited (collectively, Inco) providing for the potential development of the Kalgoorlie Nickel Project (KNP or Project).
The agreement provides that Inco will earn its interest in the Project by funding all evaluation and meeting certain evaluation milestones. If the KNP proceeds to construction, Inco will be responsible for procuring 100% of the debt project finance and will fund all but 4.5% of Heron’s share of equity funding required for the Project, as a loan repayable from Project revenues.
Upon all milestones being met and the KNP being commissioned, Inco will earn a 60% interest in the project with Heron retaining a 40% interest. Inco will also be entitled to purchase 100% of Heron’s KNP offtake on commercial terms.
Estimated feasibility expenditure by Inco, subject to successful completion of the planned technical programs, is at least US$68 million.
Inco’s involvement delivers a clearly defined and properly funded pathway to Heron to advance the KNP towards becoming a major global nickel producer.
Inco Nickel Sulphide Joint Venture
Heron and Inco are negotiating a separate regional nickel sulphide joint venture. Heron’s role will be project generation, with Inco having the right to earn equity through ore discovery.
Inco Placement raising A$12.4 million
Heron completed an excluded placement to Inco to raise $12.375 million (before costs). This placement results in Inco becoming the second largest Shareholder in Heron at 10.2%.
The new funds raised will also allow Heron with Inco to evaluate additional resource targets currently outside the KNP, for possible inclusion in the Project.
fantastic Red.
now my read is that if we replicate that deal, we basically get 40% of earnings and don't have to worry about stumping up capital. Earnings on our 2.25mt was north of $300m+ before bonus scandium, manganese, alumina etc under assessment from memory which makes us a 20 bagger from here give or take, on what is effectively the smallest throughout a strategic partner is likely to consider.
the things I love about this deal structure is that it suits a strategic partner that
1) has access to lots of low cost capital
2) is comfortable with the technical/engineering risk
3) doesn't want to worry about metal price fluctuations and mucking around with offtake terms. Just happy to take 60% of whatever is produced regardless of market pricing because they just want what's in the ground regardless.
I.e. the kind of partner you want...it is perfectly suited to the geopolitically charged, low interest, high debt, low yield world we find ourselves in. What are government bonds worth? Interest offered by bank of Japan? The capital ask here is tiny when you understand what's at stake in the fight over resources, and the upside of controlling 60% of such a massive, multi decade asset.
what an exciting time to be trying to pick the bottom lol.
name me a peer that has a shot at 20 bags after dilution from here and I'll happily jump ship. I'm yet to see anything like that.
(20min delay)