Exec Summary: The Market Has Got It Wrong on CZR
The smart money has largely disappeared, and CZR’s share price of 16.5c is now well below pre-acquisition announcement levels (e.g., 21c in November 2023), reflecting a 0% probability of FIRB approval. At this price, the market seems convinced FIRB will never approve Miracle Iron’s acquisition of Robe Mesa.
But here’s why the market’s pricing is likely wrong:
FIRB Approval Is Still Possible Post-Election
FIRB delays are politically motivated, with China-linked investments being a sensitive topic ahead of the election.
Post-election, approval becomes more likely, especially under a Liberal government that has criticised current delays.
Miracle Iron Is Unlikely to Walk Away
Robe Mesa is strategically vital for Miracle Iron, complementing their nearby Paulsens East project and ensuring supply security for trading partners.
Their significant investment to date suggests they’ll hold out until after the election.
Third-Party Bidders Add Upside
If Miracle Iron faces continued delays, CZR’s engagement with an investment bank could bring in a competing offer from buyers like Mitsui or Robe River JV before the Australian election in May 2025
At its current price (~16.5c), the market has priced in extreme pessimism, but FIRB approval or a competitive bid could deliver significant upside.
1. FIRB’s Prolonged Silence: Strategic Delay?
The first question to ask is what the likelihood of FIRB approval is and how much of this probability is already factored into CZR's share price.
Unusually Long Delay - FIRB has yet to approve the acquisition over a year after the application was submitted. Considering the median processing time for similar proposals is ~42 days, the extended delay is highly unusual and likely deliberate (source: FIRB)
Political Sensitivity - China-related investments are a political hot potato, especially as the election approaches. Politicians are wary of appearing soft on foreign ownership, and FIRB’s delay could be a strategic move to defer a decision until the political fallout is minimized.
Angus Taylor has highlighted FIRB inefficiencies, stating:
“Labor promised more efficient FIRB approvals in the Budget, and it is clear they are not delivering.”
“It is crucial that there should not be further delays than necessary — this puts the viability of Australian businesses and jobs at risk.” (Source: The West Australian)
FIRB might also hope that prolonged uncertainty discourages Miracle Iron, forcing them to abandon the acquisition without needing an outright rejection.
Near Floor Valuation - With CZR’s share price currently hovering around 16c, the market has effectively priced in significant skepticism about FIRB approval. This is evident from the share price returning to levels below the pre-acquisition announcement price of 18c in October 2023 and 21c in November 2023.
The announcement of the sale in January 2024, following a trading halt in December, initially boosted market sentiment. However, the prolonged FIRB delays have caused investor confidence to erode, with the current valuation reflecting a near 100% assumption that FIRB approval will not occur.
This market view, however, appears overly pessimistic. FIRB approval remains plausible, particularly post-election, depending on the political outcome. The near-floor valuation provides a strong risk-reward opportunity for investors who believe FIRB approval—or an alternative buyer—remains a viable scenario
Minimal Downside Risk - The current valuation largely reflects existing asset value and minimal contribution from the Robe Mesa deal. This limits downside risk while maintaining strong upside potential.
2. Election Outlook and Implications for FIRB Approval
The next question to consider, given that approval is unlikely before the election, is how the election outcome will influence the probability of FIRB approval.
The upcoming Australian federal election introduces variables that could significantly impact the approval process for Miracle Iron's acquisition of the Robe Mesa project. Here's an analysis of the current political landscape and the potential outcomes:
2A. Current Political Climate
Polling Trends: Recent polls indicate a shift in voter sentiment. A Newspoll published by The Australian shows the Coalition leading 51-49 on a two-party-preferred basis, with 53% of voters expecting a Coalition victory. This marks a reversal from six months prior, where Labor was favored by 55%. (Source: theaustralian)
Leadership Approval Ratings: Prime Minister Anthony Albanese's approval has declined to 37%, with dissatisfaction rising to 57%. In contrast, Opposition Leader Peter Dutton has seen a slight improvement in his approval ratings. (source:theaustralian)
2B. Potential Election Outcomes and FIRB Approval Likelihood
If the Coalition Wins:
Pro-Investment Stance: The Coalition has signaled intentions to expedite mining projects. Opposition resources spokeswoman Susan McDonald emphasised the need to remove obstacles for project progression, particularly in Queensland and Western Australia (Source: theaustralian)
Streamlined FIRB Process: Shadow Treasurer Angus Taylor has criticized current delays, suggesting a Coalition government would prioritize more efficient FIRB approvals (Source:theaustralian)
Approval Probability: Given these positions, a Coalition-led government would likely approve the Robe Mesa acquisition
If Labor Retains Power:
Balanced Approach: Labor emphasises regional development and job creation but has shown caution regarding foreign investments, especially those linked to China.
Approval Probability: While Labor could approve the deal to support economic growth, the likelihood is less certain compared to a Coalition government, with approval odds potentially around 50/50.
3. Strategic Importance of Robe Mesa to Miracle Iron
Assuming a decision occurs after the election, the final question to ask is whether Miracle Iron will maintain its position throughout the process
Miracle Iron’s commitment to Robe Mesa goes beyond a typical investment; it’s a strategic cornerstone for their broader ambitions in Australia and it’s likely they will not walk away from this deal until after the Australian Election
3A. Synergies with Paulsens East
Complementary Scale - Miracle Iron’s existing project, Paulsens East, is relatively small (~6.2Mt reserves) and has limited scalability. Robe Mesa (~33.4Mt reserves) provides the scale needed to improve operational efficiencies.
Shared Infrastructure - The two projects, located ~60 km apart, offer cost-saving opportunities through shared transport, haulage, and office overheads
Port of Ashburton Dependence - Both projects are crucial to the success of the 5 Mtpa port joint venture with Strike Resources and CSL Australia. Without Robe Mesa, throughput could fall short, increasing per-tonne export costs for Paulsens East.
3B. Bargain Purchase with Strong Upside
Undervalued Asset - Even under conservative pricing of $90 USD/tonne (vs. $105 USD/tonne today), Robe Mesa is valued at ~$260M. Miracle Iron is acquiring it at a significant discount at $100M, making it an exceptional deal. (Source: CZR)
Upside Potential - If iron ore prices recover, the project’s valuation could rise significantly, delivering long-term returns that justify any current delays.
3C. Long-Term Strategic Goals
Supply Security - Securing Robe Mesa ensures a reliable, high-grade supply for Steel trading partners (e.g., Sino Steel), reducing dependence on external sources and supporting vertical integration
Pilbara Presence - Retaining Robe Mesa strengthens Miracle Iron’s foothold in Australia’s Pilbara region, a globally significant hub for iron ore production. This is a long-term strategic move to secure resources in a key market.
4. Potential for a Third-Party Purchase
The final question to ask is whether a third-party purchase of Robe Mesa is viable, particularly given FIRB delays, and how this possibility could influence CZR’s share price and shareholder value.
While Miracle Iron remains the frontrunner for Robe Mesa, the possibility of a third-party purchase cannot be ignored, especially if FIRB continues to delay. Here’s why this scenario remains viable:
4A. Active Engagement with Investment Banks
CZR’s Strategy - CZR has likely engaged an investment bank to explore alternative buyers for Robe Mesa, ensuring that shareholder value is preserved if FIRB delays persist. (source: CZR)
CZR 29 November 2024 announcement: “Allowing CZR to resume discussions with third parties regarding Robe Mesa”
Potential Buyers -
Mitsui - A global iron ore player with the capital and expertise to acquire Robe Mesa. Mitsui’s involvement in joint ventures like Robe River JV makes them a plausible candidate.
Robe River JV (Rio Tinto) - Robe Mesa could be an attractive bolt-on asset for the JV, enhancing production capacity and extending mine life.
Potential Value and Share Price Adjustment -
The asset value for CZR’s Robe Mesa asset is $260M, but was offered a significantly discounted value of $100m by Miracle Iron (equivalent to 47c per CZR share),if another offer comes from a 3rd party, the share price could readjust to highs of 38 cents seen in January 2024
4B. Timeline for Offers
Mid-2025 Likelihood - Given current market interest, there is a reasonable chance of receiving alternative offers by July 2025. This timeline aligns with CZR’s strategy to ensure shareholders benefit from a competitive bidding process if Miracle Iron’s bid fails to materialize.
The Bottom Line on Third-Party Interest
Even if FIRB delays continue, CZR is well-positioned to attract other buyers due to Robe Mesa’s strategic location, high-grade ore, and scalability. This ensures the project’s value remains intact and provides additional upside for shareholders.
Conclusion
At ~16.5c, CZR’s current share price reflects an overly pessimistic market view that assumes 0% probability of FIRB approval for Miracle Iron’s acquisition of Robe Mesa. This outlook discounts the strategic value of the project and the multiple pathways to resolution post-election.
With FIRB approval still a realistic possibility—particularly under a Liberal government—and the likelihood of Miracle Iron holding on, coupled with the potential for third-party bids, the downside risk is minimal while the upside is significant.
* Note: This is not Finanical Advice and Do your Own Research
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