UBS Presentation to the SFX Board Overheard Late December

UBS Presentation to the SFX Board Overheard Late December

Well, things look grim. The climate is changing, and you all have brains the size of a walnut.

Ooops, sorry, that was a presentation to the dinosaurs. Start again.

Well, things look grim. There is a real chance you lot actually have to build this mine. Yes, really, I know it’s not what you planned but the way things stand it’s a serious possibility. You’re ‘finders’ not ‘grinders’, you never signed up for hard work and never expected to last this long without getting whacked, but there you have it…. a serious risk of ending up miners! (groans from board table).

Nine years of drilling and feasibility studies, interminably slow NT negotiations, and its still a good few years longer than you planned on being around. That nine years was long but at least it was exploration and development. No daily rush, no deadlines, not much to manage in exploration. Lunch every Friday avo at Black Toms, do a few conference rounds, some action on the ground during the dry season. (Ah, the joys of a West Perth junior).

Building and running a mine though? I don’t think so, out of the pot and into the fire. You’ll end up living fly in fly out there’ll be so many trips to site. Haven’t you been promising the missus these last couple of years your boat is finally coming in (46ft Riv for summers at Thompson Bay) then it’s all happy holidays for ever. Your all stuffed full as a fat man’s undies with performance shares, let’s get on with getting taken over and get out of here (yeahs from the board table).

Iluka are the natural buyers, they are the strategic buyers with Zr production about to hit the wall, they are motivated buyers! Yes, I know they haven’t shown much interest yet, we’re all disappointed, but to be fair the mine capex did blow out (mumbles from the board table). Unfortunately, Iluka are tight as a fish’s arse, run by bean counters, “disciplined approach to capital allocation” peppering every presentation. Higher capex makes that TO hurdle harder to jump over… we need to lower the hurdle.

Iluka is either going to low ball or wait for this thing to get built first, shareholders will be disappointed, you guys risk getting stuck with he build. So rightio, here is how your going to do it. Structured sale format with a long end date, best and final bid set-up, to create competitive tension to draw Iluka out. A reeeeally long, drawn out sale process ensures all interested parties’ step into the ring with best foot forward. Most importantly, SFX shareholders have so much time to contemplate a low share price and fears of a massively diluting CR they re-set their price expectations realistically lower. Eventually, any serious investment or TO that’s not a huge CR will be welcomed with open arms.

At the end, all Iluka must do then is pitch a take-over offer higher than the value of best investment offer tabled and, hand on heart, you can recommend shareholders accept as the “best value outcome available”. Iluka know they couldn’t have paid any less and still ended up with the prize. Shareholders know they couldn’t have done any better, and the you guys sail off into the sunset (which we do in the west).

Good Luck