Hydropower - is it the next project?, page-46

Just a quick observation regarding the effect of an overhang on a stock price. On the 5th of November (roughly 9 weeks ago), RNU announced a change of substantial holder. Kabininge Nominees had reduced from 111million shares to 95mill shares. Around six weeks later, on the 24th of Dec, the same holder ceased to be a substantial holder after selling another 4.3mill shares. They still held over 90mill shares which still seems like a big overhang and certainly much more than the amount of overhang that might remain from MNB's cr.
That selling by Kabininge Nominees appeared to keep some pressure on the RNU sp and there was no way to know if Kabininge Nominees would continue selling just as there is no way to know how many more MNB shares might be sold from cr participants. However despite that seemingly large overhang, RNU's sp has doubled in the last two weeks.
One good thing about an overhang is that it keeps a sp down for longer than otherwise would have occurred and once the selling slows enough or the buying outpaces the selling, the sp can see a very large move in a very short space of time as seen for RNU in the chart below. Some positive news by RNU three days ago helped but the bulk of the rise occurred prior to that news.




My point is that once MNB gets through this round of sellers, the sp could also be headed much higher. Of course even with the absence of sellers, to go much higher you need good reason to do so.
The Cabinda phosphate project already provides enough valuation upside to see MNB reach new highs very quickly.
The following was from the scoping study.



Using a MAP price assumption of $478/t, the project NPV is US$257mill or A$356mill. MNB's 85% is worth $303mill. The current mc is $67mill. Assuming all options are exercised and if all management performance rights are achieved, the fully diluted mc would still only be $87mill.
Importantly, if all options are exercised, it would provide the company with $13million of cash which could be used for up front capex if exercised in time, or otherwise for future expansions.
The MAP price of $478 used above is roughly only half of the current price so that could be considered a base case which provides an upside target of roughly 3.5 times the current fully diluted mc. That upside multiple is conservative because it ignores the $13mill cash raised from options.
This base case scenario alone could justify a sp target of 45c which is more than double the recent MNB high of 21c. I.e., there is more than enough reason to expect that MNB could make a very rapid move to new highs soon enough.
However take a look at the sensitivity table above. A 20% increase in the MAP price would see the NPV increase from US$250 mill to US$350 mill or 40%. That is still a very conservative MAP price compared to current prices and would boost the sp target to 63c.
In Lindsay's recent Africa Down Under interview posted on this thread this morning, Lindsay describes the phosphate project as a small project. He goes on to talk about the green ammonia project. The base case 45c target and still conservative 63c targets are just derived from the scoping study and only based on the phosphate project. I can't wait to find out what the green ammonia valuation might look like, but while we wait, the "small" phosphate project offers us the promise of a sp many multiples of the current 13c and all within 12 months to first production. I think the next time this stock goes above 20c, it will make a significant new high and that should be the last wee see of the teens.
How much ammonia might the company need just for its own fertiliser use?
"Studies have found that the ideal NPK fertilizer ratio of those nutrients for flowering plants is 3-1-2. (That's 3% Nitrogen, 1% phosphorus & 2% potassium"). If that is the typical blend, it suggests the company might need to produce three times as much nitrogen in ammonia as what it will be producing from its phosphate mine. This green ammonia project could be much larger than our phosphate project? What does that do to the sp targets above? Are we looking at a better than $1 stock in 12 months?