Hi guys,As you know, MZI is now without funding and the...

Hi guys,
As you know, MZI is now without funding and the administrators are trying to recapitalize MZI and/or to sell the Keysbrook mine to the highest bidder and distribute the cash proceeds to RMB Bank (37.5M US$) as a SENIOR secured lender, and whatever remains (if any) to RCF as a SUBORDINATED secured lender (61M US$ + 21M US$ convertible notes).

In my opinion, RCF is totally mistaken if it believes that it will receive any significant cash amounts from the sale process. If the sale goes through in lieu of a recapitalization of the company, I predict the cash proceeds would be meager (30M US$ ? 50M US$ ?) in comparison to the total debt. RMB bank may partially or totally recover its debt (37.5M US$), but RCF risks receiving peanuts or even nothing at all.

Why is that? because as it stands right now, with its technical and financial difficulties and need for further investment, this is the worst time to sell the project (barely at a breakeven level), the Keysbrook mine as it stands today isn't worth much cash for potential bidders, and hence selling the project today in its current challenging distressed conditions would be a huge mistake for RCF. Give it more capital and a couple of quarters for further improvements of recovery rates and production of more valuable zircon premium and the situation would be totally different.

This should be a fun exercise, evaluating how much money the Keysbrook Leucoxene mine would be worth for bidders. Some considerations :

1- MZI owns only the WCP mine in Keysbrook for production of heavy minerals concentrate and not the MSP plant in Picton for drying and separation (owned and operated by "Doral" via a toll one month on one month off leasing contract). The buyer, therefore, could only buy the WCP plant.

2-Potenital buyers of the project are only interested in future profits that could be generated annually by the project. They are not interested in its book value / intrinsic value of its assets.

3- Potential buyers need to invest more cash to improve recovery rates of leucoxene 88 at the WCP (for instance buying and installing a new set of high tech spirals, this operation may cost some 10M$ up to 20M$, with associated risks of the uncertainty of results / downtime-shutdown times).

4- there remain around 8 years of proven economic reserves of heavy minerals in Keysbrook (at 120.000 tonnes of HM concentrate per year). Any potential buyer would be looking to recoup his investment in just 8 years. Any additional years of operation are uncertain at this moment (require further economic studies / more drilling...etc).

5- Total all-in sustaining Costs of operations per quarter are estimated at 20M$ (including land acquisition expenses, interest payments, but excluding any debt repayments or royalty payments). Revenue now is barely at a breakeven level (20M$).

Given the above, how much money any potential buyer would be willing to put in order to buy the project?

Assuming (best case scenario for the potential buyer) that the company has successfully been able to upgrade its zircon concentrate to a zircon premium product and get some additional 1.8M$ revenue per quarter (producing 2000 tonnes of zircon premium (1800 AU$ per tonne) quarterly instead of zircon concentrate (900 AU$ per tonne)), total revenue would be at around 22M$ per quarter.

That is 2M$ of profits per quarter (before taxes and excluding any debt repayments, or royalty payments) or 8M$ per year. If we consider taxes and royalty payments, the profits would be around 5M$ annually at current mine conditions (assuming steady state production, optimistic best-case scenario, the zircon premium value initiative did work out and that nothing went wrong).

8 years of operations would bring 40Million AU$ of profits. So any potential buyer should pay less than 40M AU$ for the Keysbrook mine in order to recover his initial investment and make some profits. If the buyer would want to upgrade the mine (another 10M$ - 20M$ capex) he will do his own calculations of how much return on his investment he may expect. Good luck with that sale RCF! Even RMB bank may not be able to recover its total debt...

Mark my words, if the sale process of the project goes on without a company recapitalization and rather in a liquidation/auction fashion, RCF would get either nothing or just peanuts from the sale. They would be the biggest loser, and after the Wolf Minerals debacle, good luck for them and their reputation convincing future clients investing in their funds. Their best chance is to participate in the refinancing/recapitalization of the company and sell the project only once it's ready for sale.