Value destruction

This deal with give SBM $122M of unrestricted cash and limited production to generate future free cash flows. Production post FY23 will rely on Simberi oxides at probably AISC of +$2,500/oz - Simberi has high fixed costs and AISC is very sensitive to volume of production. For a low production operation PNG is a difficult jurisdiction to operate in giving rise to high fixed costs and operational risks. Oxide production from Simberi post FY25 seems unlikely without some material exploration success.

Atlantic Fifteen Mile Stream development is identified for FY26 - development will be subject to permitting, capex is likely to be reasonably high and production is not likely to occur until FY27 at the earliest. Investment in Simberi Sulphides is to be revisited by FY26 - this project has been under investigation and subject to detailed study since at least FY18 - capex for this project will be high. This seems to be putting the decision about the sulphides in the too hard basket - SBM tried to divest the asset and couldn't get any interest based on its market releases.

The current directors on the SBM board have been there 8+ years - they have clearly mismanagement the company and supported Jetson who mismanaged the company. Jetson was paid $1M salary per annum since Feb 2020 and spent $10s of millions on consultants to bring the company to its knees. The Genesis presentation clearly states that it intends to rejuvenate the Gwalia asset and deliver value - why could the SBM board and astute leadership not have achieved this outcome? In my view they have put up the white flag and are handing over to Raleigh to deliver value at the expense of SBM shareholders. Raleigh can see the mismanagement of the asset and will not be burdened by Jetson's excessive corporate cost structure. Post the sale of the Gwalia asset SBM will have cash and no debt, but this will only last a few years and the market interest in the stock will be negligible. Surprising that major institutional investors have sat on the sidelines and allowed this to occur.