August Trades, page-318

I've been meaning to add my 2c on LIN's price action last week or so, been busy and re-loading the traders I sold on MRE release. Sold half but should have sold the lot so obvious was the set-up for a pull back, but I'm a project investor at heart although isn't usually the best way to play. The list of reasons sellers were coming is long as my arm, no surprise and a lesson that LT value is usually quite divorced form ST price action.

Huge run up pre-CR on good drilling and met news flow, results well flagged/leaked
Big lick of CR flippers at 33c just wanting a quick profit on pending drilling and MRE news
MRE grand finale sucked in hot money all waiting on the big reveal pump to exit
MRE headline below expectations, released on a market big down day, meant the pop never came... just the profit takers
So many multi-bag profit holders still in LIN from so low it's all funny money to them... all are sellers now or later, you don;t average up from 1c
Unlikely any material surprises by further MRE drilling, upgrade to Indicated MRE etc.
No meaningful newsflow for 6 months unless it's left-field like monetising Guinea bauxite in sell-down deal to the Chinese
Set-up so obvious to sophisticated funds who like to push in the direction of least resistance for great trading profits (momo trading)
Plenty of weak hands (CR flippers, hot money traders, LT holders having second thoughts about taking some profit off the table)
Overlay a China crisis, falling global markets, very low RE prices, Mali reminding everyone of African risk....

No need to go on, you get the point. No disrespect, but make up your mind if you are short term, medium term or long term before the price shakeouts happen is my advice, it's all too late and a real headfk after it's happened. Trouble is, Kanga is so straight forward, the 'rough plan' so well flagged, all really material news market is waiting for release is Stage 1 study costings, financials and funding requirements, which in turn says how much the Stage 1 development CR is going to be.

Capex and opex and Study are all reliant on work-streams all intertwined and many months in the making. Insiders will have a good idea as engineering, design, quotes etc are slowly gathered, but an actual figure cant be released until it's all bedded down. Even Off-take deals have been clearly noted as dependant on timing of the plant being finalised, which is dependent on engineering FEED, quotes, bids etc, which feed into the Project Study, which ios 6 months away. This is a mini Lassonde Orphan period, unless a big cash sale deal on Guinea bauxite drops to take care of future funding or a TO drops out of nowhere.

They got money to get to Stage 1 FID, say ~$26M after last Vendor payment excluding Acc Payable 1st July. LIN are cooking at $3.5M/mnth and unlikely to slow down much with drilling on-going incl water bores etc. Expect ~$10M cash expenditure next 3 Qtrs to end Mar 24, leaving $15M (~US$10M) required for last Vendor payment on first production. LIN cannot go into Stage 1 development with a $15M bill hanging over their head on first production (ie before first payment received) being that cum-raise risky... would be a dead hand on the share price the entire build-ramp period, completely self-defeating.

If LIN go into 1st Qtr 24 to start Stage 1 construction (always some slippage) with just enough cash for last Vendor payment, how much cash do they need for capex, corp costs, ongoing exploration, community, non-construction expenses over 12+ months? Say min $5M for 12 months corp costs, capex of $35M (could be $30-50M+ imo?) says they need to raise +$40M min for clear air into construction ramp-up phase minimum, more with a decent contingency buffer. On upside, maybe some off-take pre-payment credit helps, or again monetising Guinea bauxite would be the real winner if that's possible with large upfront cash payments?

Not wanting to hose down bullish sentiment, just saying how I see it, how most of you see it, and why the market was so quick to run and mark LIN down. Again, all very Lassonde orphan stuff, nothing sinister or reflective of the project. You also all saw the obvious 26.5c support from back when Asimwe and friends got their trotters in the trough at 26c, coinciding with the uptrend since Kanga deal rumour takeoff last year. Doesn't mean 23c, 19c wont come into play during a big market correction or Malawi risk event, but was an obvious target to aim for (note shorters started covering since 9th Aug, probably kept covering as traders also re-filled into the CR flippers et al being shaken out).

I say Asimwe and friends gettting into the trough at 26c because the results that ran LIN to 46c by early May were already known by end March when the non-brokered 26c (plus an oppie) CR was done.


On the 9th March results release, up to hole 62 (incl DD 018) were already logged and sampled (for monazite content plus handXRF confirmation ), which were all assayed and released up to the 29th May, including holes 67 and 68 that probably were also completed by the end of March.

My point here is not that following directors buying their stock in volume is a good pointer to future success (it usually is of course), it's that short/medium term trading is about looking forward not backwards, not even at current results which are usually priced in or acted upon by those who expected them. In short, buy the rumour, sell the fact... Long-term investing while going into and out of profits is a painful bugger, and frankly more a style than anything to be proud of. Making money is the name of the game, so buying low, selling high, then re-setting low again is clearly the winner (so long as it doesn;t run away from you).

Another reason for pointing out Asimwe's frontrunning play is that it was frontrunning some seriously good value-adding news. The met work was better than expected with more upside indicated, the high-grade holes really changes the complexion of a Stage 1 demo plant and staged growth plan. Not sure where the market will settle at for Kanga value given African discount and RE bear market, but results since March has elevated Kanga into the top 2-3 Re deposits globally. Possibly the top on a cost/tonne NdPr basis?

23c was the floor I was looking for based on 50% retracement and that LIN was 23c beginning of March before Tesla drove a stake through the heart of the RE market. Below are selected ASX RE stocks since 1st March, and MEI and LIN have been the best performed, two world class deposits, while the other in LYC keeps on trucking with government grants and head start. The market has worked out the dead projects still walking despite enormous lobbying efforts at keeping them alive with subsidies. Despite the RE price and market tanking since early March on Tesla going to ferrite-P-Mags, there is enough value-add and strategic upside to LIN that it won;t make it back to 23c. Hopefully 27c is the floor, though I've got room for more.


The only way to ride out Lassonde without losing too much sleep is either blind confidence or substantiated fundamental valuation (permitting, project technical, financial, strategic, timing, funding etc). Unfortunately, there is little to be done about African risk besides DYOR on each country's situation and history, consider how it might be mitigated, and cross your fingers. Malawi has a lot going for it in terms of tribal unity and peace, democracy, a court system that seems reliable, and stood up to the test regards Kanga vendors trying to shift goal posts on a commercial deal. RIO moving in with a SVM joint venture is a big tick, as is a paucity of economic deposits with which to play games with, and large World Bank funding programmes that brings considerable pressure not to be corrupt or screw Western miners lest it be withdrawn (see Madagascar). Doesn;t mean LIN will be free from corruption, but hopefully only small scale 'spreading the love' that doesn;t interfere with acceptable commercial practice.

One way to mitigate risk and encourage investor confidence is developing African projects with minimal upfront capital at risk, and expansion through free cash generation (big tick there). In that respect I had an epiphany the other day. Everyone has been looking at Kanga Stage 1 wrong imo, both LIN and the market been so obsessed with the size of Kanga's deposit they're not seeing the wood for the trees. Not helped by the MRE either I might add, these very large intrusion type deposits on sparse drilling are notorious for grade averaging, which is OK for a 40Mtpa copper porphyry but not the situation Kanga is likely to be faced with any time soon. Think of it like a gold mine is my tip, and it should put a smile on your dial...

Ooooh, 29.5c now i finished blathering away on this post.... put a smile on my dial already, and it's not even Friday drinks time yet

GLTAH