Team Rare Triples, page-4

1	Good morning! Welcome to a new Rare Triples analysis. For this week, we're taking a look into the African mining space. This space isn't for everyone and there are plenty of examples of how investments here can go wrong. However, the company we are looking at has excelled in Malawi and delivered shareholders over 10x returns in the last 24 months. Because it's challenging to evaluate stocks with assets in Africa, it's important to pay close attention to the quality of the management team and monitor their actions for signs of confidence. Effectively understanding a company which others avoid can help us uncover undervalued opportunities. Let's dive in a see whetherLindian Resources (ASX:LIN)is a rare Triple Threat. Let’s take a look.
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3	Threat #1 - Spending to grow
4	As we often do with growth companies, it's important to understand how efficiently capital is allocated to growth activities rather than supporting overhead costs. This insight provides a glimpse into the prudent use of shareholder funds. An optimal balance ensures maximum engagement in growth activities, thereby increasing value, while considering factors such as dilutive capital raises. For exploration companies like Lindian, these activities typically involve fieldwork, drilling, studies, and others, all contributing to the goal of defining economically valuable resources for mining or sale. Analysing for this threat is relatively straightforward in Lindian's case. See more below:
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6	There are a few additional things to note when looking at the numbers. Firstly, significant cash (over multiple quarters) was spent on acquiring Rift Valley Resource Developments Limited, a Malawian company that holds the main Kangunkande asset. We do not include corporate-related transactions like this one because it is a one-off event and doesn't contribute to incremental value accretion. Secondly, the nature of the business changed in August 2022 when Lindian announced its acquisition of the Kangunkande asset. Therefore, it only makes sense to examine the cash flow reports from that point forward, rather than the 2-3 years we typically review. When we examine the last column, we can see that Q1 was well below an optimal figure (approximately 3 or higher). This is likely because the project had just been acquired, and meaningful work had not yet commenced. The figure increased significantly to well above 3 in the following quarters, which is encouraging as it indicates that the company is investing heavily in growth activities without experiencing a linear increase in overhead costs. With the recent $35m capital raise, the company seems well-positioned to sustain this strong ratio in the future.
7	Threat #2 - Director on-market buying
8	A director spending their own cash to buy shares on the market or in a raise is the ultimate sign of confidence that the company’s share value is underappreciated by the market. This is usually on top of any free performance rights or director options received and is fully discretionary by directors - suggesting that they’ve decided to increase their exposure to the upside potential of the company. In many cases, a large volume of on-market buying by directors can signal that they expect a near-term catalyst in the stock price, as they’re likely privy to more knowledge than the average investor. For Lindian, the Executive Chairman, Asimwe Kabunga, has demonstrated strong support by participating in almost every major placement. This is in addition to a large off-market transfer. More details below: Asimwe Kabunga - Executive Chairman 16 August 2023: 1,923,076 shares + 961,538 options for $500,000 (link) 24 April 2023: 2,738,095 + 1,369,048 options for $575,000 (link) 18 November 2022: 12,500,000 shares via options conversion for $250,000 (link) 22 August 2022: 16,090,407 shares for $4,263,958 (link) 29 March 2022: 10,000,000 shares via debt conversion for $300,000 (link) The company also recently appointed a director - Zuliang (Park) Wei. Although Park Wei was only recently appointed as a director of Lindian, we can see that he has invested almost $10 million of his cash into the business over the last 9 months.
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10	If we match these transactions that Bonacare Pty Ltd acquired the shares in, we can see that Park likely participated in the recent $35 million placement by investing $7 million, which lines up roughly with the 20 July 2023 date. The other $2 million transaction was stated to have been on 2 June 2023, but this is likely a typo, as on 1 June 2022, LIN completed an exactly $2 million placement at $0.10 (20 million shares) to a single investor. Therefore, between Asimwe and Park, the company’s current directors have collectively invested over $15 million in additional stock purchases over the last 24 months. This is an outstanding level of support. These purchases should be particularly notable as the directors have continued purchasing in later capital raises when the share price is much higher than it was during their initial purchases 1-2 years ago. Usually, directors buy when it’s cheap and stop when the initial re-rate happens, so seeing this continued support at current prices is highly positive.
11	Threat #3 - Setting goals
12	The regular setting of goals is a critical component of company management and allows investors to make much more informed decisions about their investments. This is because it enables investors to understand the direction management expects to take the company and, therefore, the risk profile, investment horizon, and likelihood of success. Given that Lindian’s history with Kangunkande only extends across the last year or so, we have a limited set of information to assess this threat. Nevertheless, the company first outlined a set of targets on August 1, 2022, when the 100% acquisition of the asset was announced. However, this announcement was not very specific and failed to offer any guidance on when goals were expected to be achieved.
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14	Fortunately, not long after this on 8 August 2022, a more comprehensive list of goals was announced in an investor presentation (link).
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16	Let’s begin by assessing the goals outlined here and whether they’ve been achieved:
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19	As we can see, the company has broadly achieved most of their outlined goals, with some delays explained and a few missed without explanation. It is worth noting that missing or canceling goals is to be expected in a fast-moving industry such as mine development, yet well-run companies should give explanations to shareholders when such changes happen. On the other hand, Lindian has also overachieved on some tasks, such as announcing the maiden mineral resource one quarter early on August 3, 2023.Link here. With these considerations in mind, Lindian has generally done a great job setting and meeting goals. Investors can, therefore, have confidence that the company will continue to meet most of their goals in a timely manner, with the potential for overachievement when possible. The latest set of goals was outlined on September 8, 2023, in the Africa Down Under presentation. Link here.
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21	Our Final Takeaway
22	Lindian is a unique case study for us as their track record is fairly limited at 1.5 years. This is because the nature of the company changed after the acquisition of the Malawi Kangunkade asset, which allowed them to raise over $50 million while generating meaningful share price traction with investors. During this period, management has broadly delivered on all of their strategic goals promised and followed through on their word with cash commitments during funding rounds. Although there are no concerns about the company, an interesting dynamic to note is that the additional stock purchases by management historically are almost solely made by the executive chairman. There seems to be very little additional support from other directors, nor are there any additional stock purchases on-market. Yet overall, Lindian has demonstrated very strong foundations, and we view the company as a rare Triple Threat. Missed last week’s Rare Triples analysis? View ithere. Want to see more? Read our other ASX company case studieshereand keep an eye out for our next Rare Triples email next week.

Hopefully not copy-writed but sharing the rare triples email about LIN here. Think it has good points and perspective for every shareholder to understand when investing in small caps.