Just spoken to my mate about NKP last night and earlier...

Just spoken to my mate about NKP last night and earlier today.

Here are his thoughts below. As normal you have to make your own judgement and always do your own research.

When I read the Quarterly or the announcements of the past 6 weeks the 2 main things that I take notice is the Environmental Bond has been posted and the BFS/DFS Comparison.

I have asked my contacts in the South African Mining industry with regards to the Environmental Bonds and am told that there are 2 stages. The first bond is usually of a smaller amount which shows that you have intent in development. Usually this could range in the region of 20-30m RND ($USD2.5-$USD3.8). The 2nd stage is around 100m RND ($USD12.8m) is posted before official mining commences. Usually when the stage 1 bond is posted you also have to show that you have the money ready for the stage 2 bond. Usually a bank confirmation letter should be enough.
Speaking to some of my lawyer contacts in Johannesburg they told me that when you have projects that are in Joint Venture this bond would most likely be shares according to the percentages that each party holds. In NKP case where the company does not have the funds to post the bond then you can safely assume that the bond was posted by the front running JV partner behind the scene. The other thing that could happen is that the front running JV partner would post up most of the bond and say lend the difference to NKP. If this is the case then I can see that the collateral used was NKP shares held by Genorah. Hence this would explain why there was an increase in a transfer of Genorah shares recently (I believe earlier in the year this happened). The shares are still in Genorah ownership but are held in a Margin Loan equivalent scenario.

If you look back at the financials of the recent Quarterly you can see that NKP spent only $USD615k. Let’s take the Environmental Bond at 25m RND (Mid-point) then this is roughly $USD3.125m. Also NKP did not take on an extra loan or debt equivalent facility. Unless the government has waived this fee for NKP (which will not happen) then the logical explanation is that an external party has put up the money or the external party has helped NKP put up the money through a hybrid instrument so it’s kept off balance sheet. I see the second scenario as the most logical. For the Stage 2 bond you can see that NKP definitely does not have this money so another party has to be standing by. I am not saying that NKP has done a deal with a JV partner but what I can see is that there is definitely a party that is engaged on an advanced level that is walking together with NKP. Do they end up in a marriage with NKP ... well only time will tell.

With regards to timing of when a JV can be finalised this is the million dollar question and there is a hint of what needs to still be done if you read the BFS/DFS comparison.
The Mining cost and Gross revenue is very similar which means the size of the project in terms of size is the same. The mining zone in the DFS is 2.2m compared to 1.1m which indicates that they are targeting mining in areas that are thicker. Also the resource decrease that was reported last year (JORC decrease) most likely means that they are only targeting the resources in the thicker areas.

The big differences are the project CAPEX which is $USD625m in the DFS while it’s $USD1200 in the BFS. The base metals extraction is 0.6g/t in DFS compared to nothing in the BFS and the Mining Capital Efficiency is reduced from 1360RND per tonne in the BFS to just 360RND per tonne under the DFS. All the significant changes that you see here is indicative of infrastructure and downstream processing. This indicates to me that the Anglo/ARM deal where the Hoepakrantz farm is given for a JV on infrastructure and downstream processing is on the cards. Using “Board and Pillar” compared to conventional mining does not make this much of a difference. It results in about a 10-20% operational cost efficiency (if it’s done properly) but certainly does not result in a 50%+ reduction is CAPEX and 75% reduction in OPEX. Also the fact that there is now base metal extraction means that NKP wants to access extra machinery. I have believed all along that ANGLO/ARM hard stance is due to more of an economic reason rather than “chest beating”. I know Norton Rose is advising ANGLO/ARM and I hope that this resolution can be reached soon. If the ANGLO/ARM resolution can be resolved I see the JV will occur soon afterwards. This is the factor that is the uncontrollable variable.

The factor that only NKP would know which I cannot audit is that what are the exact terms and conditions of the JV that is being discussed in the background. I am more interested to know that even if a JV is reached, what are the little issues that may allow the JV partner to pull the pin or delay the project.

I will continue to talk to people in South Africa over time to see what other knowledge I can gain and get an independent opinion to what may be going on.