KRC - An Exceptionally Attractive Takeover Target

KRC - An Exceptionally Attractive Takeover Target

A little background on my working experience. I retired from HSBC after 32 years career span, of which the last 20 years I was with the Risk Management division. My last position was Head of Corporate Risk Strategy.

I have been investing in stocks for past 20 years, primarily in SGX and HKSE. Am a fundamental investor with a focus on value and margin of safety. As far as stock investing goes the learning never stops. Always remind myself to avoid speculation and from taking excessive risk.

I started investing in KRC in Feb, driven by its multi-resource story and gold. The posts by Stephen, Thainvest and Possum were very helpful. I was amazed by the scale of the resources of Vanadium, Titanium and Flourite. Having gold in one’s portfolio is always a good thing and I saw it in Mt Remarkable. Its drilling results, though early stage, were very positive.

I understand that investing in Junior Miners has disproportionate risk profile (only has 2 ASX Mining stocks in my portfolio), but for KRC this stock meets my parameters (with multi-fold risk mitigants):-

• - Strong and Transparent Management.
• - TB has 34 years Commercial Experience
• - Valuable Multi Resource Assets
• - Vanadium – New Clean Energy
• - Advanced Development Stage
• - Gold – Safe Haven Exposure
• - Cash Reserve of 7 million
• - 44m Options 2020 (conversion at 12c)

KRC is in a much stronger position now compared to last Feb on both micro and macro aspects. Continuing positive newsflows from its Speeway project.

Recent announcement on high purity Vanadium Pentoxide (produced assaying 99.51% V2O5) is material news and a game changer. On the industry front, Vanadium prices are moving up sharply and this is no longer a trader’s play but a reflection of positive demand supply dynamics. Rising demand for vanadium, driven by secular trend, could go on for a long time supported by global new energy requirements.

Equally noteworthy, a high purity titanium dioxide product assayed 99.5% TiO2 opens up new markets for the company.

Similarly impressive was the announcement of high grade Fluorite Mineral Resources at Speewah (in accordance with JORC 2012) - 6.7 million tonnes at 24.6% CaF2.

Steady stream of strong results from Mt Remarkable continue to inspire and brings confidence as well.

2020 Options - A Master Stroke

The recent offering of 2020 Options (expiring July 2020) was timely and fulfilled these objectives:-

• Reward for Loyal Shareholders
• Provide Financial Security
• Reduce Funding and Operational Risk

Importantly, this strengthens the hands of TB when negotiating with strategic investors/partners.

Q 3 Corporate Announcements

Impending release of SS and CS will be major milestones/catalysts and are eagerly awaited by shareholders, peers, large mining groups, industry watchers. Indications are that shareholders should expect strong feasibility metrics from these studies.

More gold drilling results are also expected from Mt Remarkable.

Q 3 will be hectic and news driven and should underpin the SP. An upward trend is expected.


An Exceptionally Attractive Takeover Target

KRC is “one of a kind” given its valuable/sizeable multi-resource assets and gold. The new energy trend for Vanadium cannot be ignored.

I hold a firm view that KRC will attract early takeover bids from major Mining groups. The trigger will come from the release of CS and SS. Major Mining Groups will be keen on new energy projects for business diversification. The game plan is two folds - to ride on secular trend (new energy) and to bring long term value to shareholders.

With current MC of Aud150m, KRC is “severely” under-valued relative to its inherent values.

Can Shareholders Block a Takeover Bid?

Yes, if the offer price is below expectation and shareholders can reject the offer. However, if the offer price is attractive, the situation may reverse. It is in the hands of the shareholders (not TB alone).

KRC has a fragmented shareholdings and TB and Associates hold a 14% stake of KRC. Big Mining groups may take advantage of this situation. The loose shareholdings is conducive for hostile bids.

To thwart any potential "low ball" predatory moves, TB needs to move fast to secure a strong Strategic Investor/Partner. Also, KRC has to establish that shareholders are better off in the long run.


Can Shareholders Achieve Significant Gain from a Takeover Move?

Absolutely, provided the offer is attractive and in the case of KRC, I think the offer price will be very good if it happens. A bidding war will be good for shareholders.

These are my thoughts. Happy to receive feedback.

Please DYOR.