I have a sneaking suspicion that POSCO will want the company...

I have a sneaking suspicion that POSCO will want the company level investment in order to be able to acquire the company once mod 1 is up and running. Although POSCO aren't well known as operators of mines, they do have recent runs on the board with T/O and keeping the team in place to operate. They also don't mind having a partner like Hancock with Senex Energy.

Their issue at the moment is the share price. At 6.5c, they'd have to deploy via two tranches. The first tranche would get them to 19.9% and only allocate USD6.2 million of their committed USD40 million. The company would then hope for a good run on in SP to a broader ECM shortfall raise of about AUD144 million. Say this was completed at 12c, POSCO could only contribute another USD19 million to not breach their 19.9% holding at FID. This means a $115m ECM raise on the ASX......that's a big ask!!!

Results in about 2.5B securities on issue at FID, NPV per share of $0.82 and a 40% risk adj. NPV per share of $0.33. I reckon that's a valuation as you approach production.


The outcome that Macquarie have been working on for a long time is the project level investor. I think it's the only way you can fund this project which POSCO paying a huge premium and essentially re-rating the valuation in order to deploy their USD40 million.

In the project level investment, a partner might acquire 15% of the project for a certain number. I've used USD30 million which would value the remaining 85% that BKT holds at AUD256 million.....not sure if that's a reasonable assumption given a market cap currently on AUD 80 million but to me that's a reflection of the AUD144 million ECM raise needed in the above scenario. Not really fundable in my mind. A project partner would also be on the hook for their 15% of the capex bill. You'd hope our project economics are strong enough for our bankers to hold firm at USD113 million of debt for BKT.

If POSCO invested the same USD6.2 million of finalisation of their commitment to BKT as Tranche 1 at 6.5c to get to 19.9%, along with the project level equity from the sell off, our FID shortfall is reduced from AUD144 million in the initial example to AUD48 million. POSCO would then only deploy another USD6.2 million into the FID ECM raise to not breach 19.9%.

In this scenario, you are hoping the project level investment set the valuation for BKT FID ECM, which is the equivalent of 15c for the cap raise.

Obviously the project partner outcome, if played out like this is a far superior outcome. Adj. NPV per share of $1.06 and a risk adj. NPV per share (40% for mod 1&2) of $0.43.

I've always maintained the project outcome will be used as leverage for POSCO to pay a significant premium in order to deploy the USD40 million they want to. If you've got a partner there, you are basically saying to POSCO you can only get USD12.5 million of you USD40 million into BKT.

I'm sure there's middle ground in all this but I'm rooting for the project partner as a superior outcome. If POSCO want it, they've got to pay a long way above where we are now.