Tipping point reached

Hi everyone

Well the release of the market study is out and it is excellent reading and as I mentioned recently it now opens the door for a TO of our company.

The comment was made that this didn’t contain information we didn’t know.. and that is true to a large extent, but what it does is confirm by a reputable 3rd party that the market opportunity is significant!

And that is why IMO tonight’s announcement is a tipping point as far as a TO is concerned.

The study confirms the overall market dynamics with construction (ie steel demand) growth rates forecast to rise by 5-7% into the medium term!

Billet demand will rise to 2.9mtpa but also potentially rising to 4.5mtpa by 2030! Talk about some significant growth rates!

The market study shows that Nigeria should be able to handle an additional 1.5mtpa of billet and this is significant for me as there are no other companies out there that are at the same stage as Kogi.. so this is the medium term plant output target IMO!

This is excellent news!!

Then we have all the talk about the average billet price forecasts of US$476 but pointing out that this is conservative when taking into account the current rebar prices and not including the international quality CARES prices (check out www.ukcares.com for further info)

But what I like is that the company at the start states that the market study confirmed that the “agbaja iron ore produced a high quality steel product having minimal impurities” and provided the actual qualities.

Now I recall that over the last 12 months or so some of the astute people on here have said that they expect operating costs to be around $200 per tonne.

While the announcement today didn’t contain this information it doesn’t mean that the market study didn’t conclude this (not everything can be released as it is commercial in confidence) and IMO the fact that they confirmed the product characteristics implies to me that the forecast operating costs will be broadly in line!

So we now have lets say a cost of $200 and a sale price of at least $470 per tonne. All in USD.

And if you do that on 1mtpa (not even the 1.5mpta suggested in the report) then you get an operating profit of US$270m pa. All conservative figures.

And of course this doesn’t take into account tax incentives etc as part of the governments’ economic recovery and growth plan.

There are a lot of things not in this announcement that are no doubt contained in the actual report provided to the company and I imagine some people may feel a little disappointed that not everything was presented here. But as I said earlier there will be things here that are commercial in confidence. I mean all we need to do is look at the dot points of the first page about what the study contained, and what was ultimately in this announcement, to see that half of it wasn’t announced.

And that’s ok by me as I’m sure it will be made available to any party that is interested in approaching the company for a takeover.

And this is the situation we find ourselves in now.. we have confirmation that the ore can be turned into 99% steel, we have confirmation that a market exists for 1m+tpa in our product, we have confirmation of strong operating profit dynamics once the plant is up and running.

So if you are in the steel industry and were looking at emerging economies it would naturally take you to Africa and naturally take you to the most populous country which is Nigeria and it would naturally take you to KFE.

So this is why I feel like a TO will occur at some stage in 2019

In the meantime I’m sure the company will progress funding negotiations and progress the project as they should. 

You can only control the controllables and the strategy is to take this thing into production. But IMO the numbers are so significant, and the market cap so low, that they will not be able to stop 3rd party interest in the company.

And that tipping point is from today IMO.

Good luck all. Lets all enjoy the ride!