change in dynamics, page-5

Worth thinking about the recent Askaaf Announcement by SPH to recap on the direction forward prior to Xstata bid and Sin Tang accumulation:

Askaaf Staged Development Strategy

1. 2Mt/a Start-up Phase for US$220 million target commissioning Q4/2011, with first shipment Q1/2012.

2. 4Mt/a Expansion Phase for incremental US$320 million, to be funded from cashflow target completion 2015

The rationale for the staged development strategy is:

1. For a capital outlay of US$220 million, a 2Mt/a SFB project can be commissioned within 18 months...

2. Cashflow generated from the Start-up Phase to fund the planned US$320 million 4Mt/a Expansion Phase, thereby minimising the equity dilution needed to reach 6Mt/a.

Funding Strategy
The Company has sufficient cash on hand to meet its near-term funding requirements [$30Million AUD]....The Company will seek to source the balance of funding for the Start-up Phase from offtake related funding and strategic partners at the project level, thereby minimising dilution to shareholders. Discussions are progressing with potential strategic partners and offtakers in that regard.

It is apparent from the last paragraph that SPH directors would prefer partners at the project level and Sin Tang seem to fit in that respect.

If Sin Tang were to completely fund the Askaaf Start-Up Phase, it would require around $200Million. SPH could issue 80Million shares at $2.50 in return for the cash. SPH shares issued currently stand at 170 Million.

Therefore, in return for funding, Sin Tang would own around 40% of the company [v. rough est]. But, given the value of the 2 other projects: Lebtheinia and Guelb el Aouj,I doubt Sin Tang would be able to buy in at $2.50, rather there would be conditions attached that would almost certainly benefit the current shareholders...

Once Asaaf Start-Up Phase is shipping ore, the cash flow will fund the Expansion Phase, which in addition to providing strong cash flows would give a significant boost to commisioning Guelb el Aouj under terms attractive to current shareholders.

This bootstrap approach is still my preference for extracting the best long term value for shareholders and may still be on the cards. Will be an interesting week ahead if Sin Tang officially present a deal to SPH....

cheers