I'm excited today!
No, not because it's hump day, because of the SFX price action, the bots working their magic, the lack of 'normal' sellers, the price resistance held, my confirmation bias kicking in haha. In short, it doesn't look like stale sellers taking advantage of the chance to undo their CR placement mistake at 65c, the selling looks desperate and aggressive, backing up my FA that ILU want, need, must have SFX mmmmmwhahahaha (evil laugh).
Yes, I've been trying to buy up but forced to nibble for 2 interminable weeks while the ASX marches inexorably upwards and nobody wanted to sell. Why would they sell? In a strongly rising market after riding this out for 3 months, needs a bit of fear to shake holders loose but fear is nowhere to be seen. The trend is now a friend. Anybody who was going to be shaken out, indexed down, or take some off the table before a possible discounted CR below 65c has probably already done so. Recently, the selling mostly seemed odd and strategic as some posters have pointed out, especially at the beginning and end of the day's trading. Motivated sellers and their volumes had long gone it seems, while the reasons to buy are piling up with a booming min sands market and strong ASX tailwind.
Not much buying competition either, just a few into the stock as it looks to have risen from a double bottom, perhaps some on HC with room for a bit more. Insto's and brokers need volume which hasn't been around, would be waiting to load up into the pending CR most think is coming (yours truly guilty). Believers were long before the 65c CR, longer if they averaged down into it, and longer still averaging again on the way down over the following 3 months.
An illiquid standoff is quite understandable with seemingly binary news pending (ie good news or large CR). Without many sellers or buyers, it makes sense the two might stand off across the 65c resistance moat waiting to see how things pan out. Maybe, given the better TA and FA, and with talk of booming min sand prices, large Zr deficits stretching out into the future etc, buyers who have been steadily piling up the bid would make a foray across that moat which appeared so temptingly undefended (hardly any sellers on screen). Today they did, and got ambushed by a bot selling as much as you wanted at 66c in 1000 lots, nano-second trades faster than a machine gun. Later, aggressive selling kicked in hammering anyone on the bid at 64c while pinging the lower bids all day with tiny sells. Job done, 65c well and truly defended. But why the need for such aggressive selling during an massive ASX rally, especially for commodity stocks, one that just keeps on going?
I'm not usually for Machiavellian manipulation theories, bots are all over the ASX these days making money for their owners, but I'm calling BS that real sellers suddenly and aggressively appeared wanting to get out without even trying for an extra cent or two. The set-up and trading, which I have been watching closely, smacks of desperation to cap the price in the absence of any real sellers, leaving no risk that buyer's even think of a breakout. If the markets had a decent sell-off as we are due then sure, profit takers from sub-60c and CR sophisticates may well decide to unwind in a hurry, balancing the market at 65c. But there just doesn't appear to be any real, relaxed selling, just a determined effort to stop any thought of moving higher despite a clear uptick in buyer demand.
I had a decent crack at 66c myself today actually, not worried about a couple of cents and frankly I just felt the tide had turned that strongly supply at sub 64c looks dried up. If it came back a couple of cents fine, if it stepped up higher I got my fill. Again, real sellers might have let some buyers run the price a bit above 65c before filling them in, or at least put some up for sale at a higher price to see who might move up to grab them. Nup, nothing so usual, just a small target bot that didn't seem worth even hitting, designed to cap the price but without encouraging anyone of size to actually bother trying. A bot with reasonable fire power it seems, 66c unassailable, then taking out 64's alll day and chipping away at bids below relentlessly. I doubt enough believers have room or desire left to push this past a determined capper, so 65c might be the best we get in the short term. Soon enough real sellers will probably decide there is no more upside and come in also, doesn't bother me, I'm in at least until the situation is revealed.
Possible reasons why the price is being capped by sophisticated players is pretty obvious and been discussed before. Buyers for the project, or into the company, want a low price for 'market valuation' or share issue purposes. I have been diving down the rabbit hole of possible future Zr production, pricing, and especially Iluka's ability to maintain current Zr production levels. As the spreadsheets and supporting notes pile up it looks clearer and clearer that Iluka can only get close to their current production levels after 2022 with a number of lower Zr, low margin, high risk projects. All but one of these possible mines would be finished by 2030, all their 'flex' ZIC would be spent, while never again matching their current 375Kt Zr annual sales rate. After 2030, Iluka Zr falls off a cliff. Not just the is Iluka the natural and strategic TB buyer, they need TB desperately imo, and are my number one pick for the player behind current price action.
At best, Iluka steadily reduce their share of world Zr production over the next decade with higher risk, lower margin mines. At worst, the Hail Mary projects don't stack up (Balranald direction drilling U/G mining, Wimmera ultra fine Zr/REE deposit) and they're left with a only few more years squeezing the last drops out of WA and Eucla before turning off the Zr lights. All of Ilujka's remaining Zr projects have been around but not mined for many years precisely because they are low margin or high risk. I'm not saying these mines will not get up and be a profitable part of filling the Zr supply deficit, but should a $4B bluechip company bet their future on it? Finish Eucla and WA before the end of next decade and if Balranald/Wimmera fail to pass muster, Iluka is just left with high sovereign risk Sierra Leone rutile and Sri Lankan sulphate ilmentie (if the politics works out). IMO ILU wouldn't even command a $1B market cap in that case, especially with the ongoing and future high legacy-rehabilitation costs. Markets are forward looking and will twig onto this risk well before 2022 Zr production drop. To say there is a lot is riding on a this new crop of old Australian deposits is an understatement.
Even if Balranald, Wimmera, Eucla/WA remnants work out, Zr production still shrinks from 2022 into a 2030 cliff sans major exploration success (and Iluka would be well advised not to hang the company's future survival on exploration, meaningful discoveries are few and becoming far between). Much better to to bring TB in house, de-risk their Zr production profile, stop burning through the Nargulu ZIC 'flex' stockpile, grow instead of shrink their share of world Zr production into a rising Zr deficit and rising prices, preserve billions of share market equity value. It's a no-lose play in a high Zr price market, take-over is significantly earnings accretive on the one hand, while insuring against calamitous market-value destruction on the other.
Iluka gains a lot in marketing clout, pricing power and share price premium through their status as the major Zr supplier and swing producer. This is something not to be given up lightly, something they go to great efforts to preserve with 'flex' production etc, and bang on about every presentation. TB would secure Zr production over the short term thus mitigating the development and price risk of their potential new mines, preserve premium Zr producer status, avoid incurring the dreaded sovereign risk discount African dominant companies incur, form a tier 1 foundation for 40+ years Zr production around which to build on. High cost, hand to mouth, short mine life deposits is no way to go for a serious commodity company to operate, investors and suppliers want the certainly that comes with long life Tier 1 assets in the mix. Frankly, TB is not just a perfect strategic fit for Iluka's current dilemma, it is an inoculation against the existential threat of Zr insignificance and share price destruction.
So yes, I'm excited that the price capping action supports my new found enthusiasm for SFX as a take-over play despite the probably the price will wallow below 65c until the funding deal is complete. I am nothing if not flexible, and for all the many reasons raised on HC over the last few weeks SFX is looking less like a CR risk and more like a min sands value buy with takeover upside. The price action since 55c lows and deeper consideration of the sell down process structure, leed me to believe final bids are not in yet and the process is 'live'. The TB project is obviously much more valuable with higher than DFS prices, projected by many here to go much higher still, which together with it's strategic long-life value, into a potentially multi-decade Zr supply deficit, make it a desirable investment for many I now agree. The high capex is not ideal, CR downside risk is still real, but with the above in mind the price risk of buying below 65c now appears low compared to the upside.
Hat tip to Franpower and all the others that make an effort to challenge opinions and add to the debate. Whether it be changing facts or changing perspective, getting welded onto a position (long or short) is never a good idea. I may debate hard, make mistakes, have no time for poor analysis, or come across as rude sometimes but in reality I am testing my interpretations and conviction against others. This process has saved me losses or made me money countless times, testing one's beliefs and bias can only improve your investing.
Anyway, I could be wrong, might be a lot more stale old holders selling or insiders knowing a large cheap CR is coming. Fascinating situation, nailed my colours to the mast, excited to see where the chips fall shortly. I'm betting it's >70% chance we get whacked by Iluka for a quick 100%+ profit haha.
Good Luck to all
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