This was posted on the RHK thread and thought it might be of...

This was posted on the RHK thread and thought it might be of interest here…..

“Why RH ought to be a TO target



Looking at the Quarterly reports for iron ore companies nearby to Red Hawk Mining’s Blacksmith Project it is interesting to see that their C1 cost are substantially lower than the proposed RHK Road Haulage solution.



FMG is a good example. FMG have shown their IO rail haulage C1 cost was just US$17.62/wmt with guidance of US$18-19/wmt.RHK’s road haulage C1 cost are projected to be US$50/wmt according to the RH Scoping Study. Taking the upper limit of the FMG guidance forecast we can see that the difference in C1 cost between RH and FMG is US$31/wmt.



Both FMG and RIO have existing rail near to RHK’s Blacksmith Project.If either were to add a spur line to RH’s Blacksmith Project they would most likely not require to make a huge capital investment.Maybe even a conveyor might be all that would be necessary. It can be seen the advantage of an FMG type rail solution vs a RHK road haulage solution more than a staggering US$31/wmt over and above RHK’s projected margin.Red Hawks Scoping Study showed a profitable shipping solution with a C1 cost of US$50/wmt but, as can be seen, a nearby rail solution with minimal additional CAPEX could reap anadditionalUS$31/t of cream for a company with an existing nearby rail and spare capacity.



So, would FMG (or RIO for that matter) have to do lots of work to prove up RH’s resource?The answer is no.RHK’s resource is well studied and is well defined and pretty much ready to go.



What would the extra margin of US$31/wmt mean to FMG (or RIO)?Let’s assume an interested party were only interested in RHK’s fines product, the cream.RHK’s 60%+ fe resource is currently around 175mt but is likely to be around 200mt by the time all deposits are included.



Let’s just use the 175mt for now in some calculations to explore what would be the value the value of that additional margin of US$31/wmt.175mt x US$31 =US$5.425 billionmargin above Red Hawk’s current Scoping Study solution!This is potentially an absolutely staggering amount of money waiting for nearby IO companies to wake up to for very little additional investment.In Australia dollars that US$5.425b is about A$7.9 billion from a well defined and well understood nearby resource that is ready to be mined!



If FMG or RIO were to wake up to the potential opportunity that exists next door shareholders of RHK would have to consider whether it would be better to go to production alone with an NPV that may well end up around A$1 billion plus with associated risk, or seek a deal that is a win for all parties.



Any deal could be structured in many forms such as upfront cash, upfront scrip, upfront cash plus royalties, upfront scrip plus royalties or, royalties only.



I think the least desirable for RH minority shareholders would be royalties only, because that means waiting for even more years before any returns. But that decision would rest with RHK’s major shareholder TIO (assuming they want to exit) and to a lesser extent OCJ.



With all this potential it is really hard to see why the current market cap of RH is only around A$106m.Almost laughable!



Will FMG or RIO seize the opportunity?What would be fair value for such a deal?Best we don’t get into that but wait and see what, if anything, is put on the table.



And yes, of course, we can’t rule out that TIO may have other plans for Red Hawk.



Regardless of any interest from other majors (or TIO) RH appears well on the path to production in 2025. PFS due early Q2 and DFS due Q3.



Now, as usual, my assumptions and calculations may be wrong so do your own research. Corrections, comments and opinions are welcome.”