aman2, kingkev and piast hey some good posts from you :)) on TN
Vale Deal is highly relevant to FINANCE.
The very valuable Trindade North tenement is now up for grabs.. i.e. renewal or re-awarding.
There is every chance that AVB will not be granted TN again and will lose it.
If AVB's renewal or re-awarding application has been rejected it will presumably say so in the Annual Report, which is in a week or so.
Trindade North is of use only to Vale.
They have the worlds biggest iron ore mine next door, a railway to the coast, and economies of scale. They are also naturally very keen to get TN and other deposits in order to add to their stated proven reserves of iron ore and hence add value to the Company. This was stated some time ago in a press release as I recall. Also to integrate TN with future mine plans.
Other than TN being awarded to nobody, there are only three possibilities I suggest.
1. TN goes to AVB. Vale will want to rapidly commence a further drilling program with more metreage and resubmit an Exploration Report. More drilling means much more JORC to prove to DNPM beyond doubt the existence of the ore body and its economics. That will result in a much higher $royalty payment to AVB! Whereas before there was an incentive for Vale to drill the minimum and try and get away with that because they paid AVB for all they found, this time they have to go for it.. and AVB benefits.. eventually.
2. Vale or an associated company obtains the tenement. Again they will commence further drilling but without involvement of AVB either on-site or as tenement holders. Their new Exploration Report will contain a JORC component defined during the AVB partnership drilling, plus the extra they now find. Thus their Report still benefits from the Partnership. The only reason AVB is cut out is that Vale's Report was inadequate, hardly the fault of AVB. Should Vale now avoid paying AVB its royalty and save millions because their first Report was fortuitously rejected....?
3. Acme Resources NL are awarded the TN tenement and Vale immediately signs another agreement and gets drilling again. It can hardly sit back beaten and do nothing after the previous expense with no result. Again the JORC component establised under the AVB partnership is there and again a royalty should be paid on it.. just as the additional ore found has a royalty payable to Acme Resources.
Given always that there reallly is economic ore there, the one certainty is that Vale will eventually gain a Mining Licence derived from a successful Exploration Report, derived in part from its initial Partnership with AVB and the preliminary and successful exploratory drilling. That drilling carries an obligation to pay AVB a royalty.
It is easy to see that any negotiations have been stalled waiting for the crucial DNPM determination on TN.
If outcome 1. occurs, then AVB/Vale Partnership is maintained and more jorc and royalty will result!! Likely closer to the $40m than the $10m minimum. Eventually.
If outcome 2. or 3. and AVB is cut right out and sidelined.... then it is up to AVB to press their case. If the DNPM determination has only just happened, then AVB through Mr. Azevedo could be expected to take determined action to get their claim documented and established. If AVB does nothing, it gets nothing.
The Argument is simple. Vale will eventually procure Trindade North. In doing so it will make use of the JORC found with AVB's cooperation. That JORC has a royalty payment obligation.
When AVB is making $50m a year at AN, news of a Vale royalty payment will not carry as much weight as it will tomorrow when $12m is urgently needed.
I feel there is a compelling case for AVB to sit down with Vale in light of all that has happened, and negotiate a settlement. Pay us $12m today or face a valid proveable jorc-claim for say $24m. We won't go away. Provide an incentive for Vale to settle at a big discount, get your money and .. run like crazy.
Thus the infamous Vale Deal is tied in tightly with discussions here on Finance.
Potentially it offers a shortcut to the $12m needed....
An announcement that the $12m cash has been obtained through successful negotiation with Vale on royalty would send the SP ballistic.
It may be only as far away as a successful and amicable sit-down meeting with Vale. AVB get cash now. Vale get a big discount on what they know they owe to AVB and so reckon they emerge as winners. All happy.
So the Vale Deal IS vitally important to Mine Finance.
The fact that nothing is being said on it does not mean that nothing is happening. On the contrary.
AVB Management are the best. I just cannot see them being tardy in persuing this, especially with Luis on board. With TN ownership resolved, the way should be clear for negotiation. Partners like Vale and AVB sit down and resolve issues intelligently. Adversaries don't.
Being legal stuff with sensitive negotiations, unike drilling, Management will rightly say absolutely nothing definitive. Certainly not give a blow by blow description. Unfortunate and frustrating for a shareholder.
In the end it is the Positive Announcement that counts I guess... not details of how they get there.
Vale is not dead in the water necessarily... when you think about it. PP
AVB Price at posting:
8.9¢ Sentiment: LT Buy Disclosure: Held
