AVB had its SIR moment a few years ago. It's price then went into a long slow decline. This has been blamed on director selling but maybe the real underlying cause is that they never backed up the initial result. There was another flurry when it looked like Antas South was going to be both high grade and enormous, and then the decline continued.
SIR has held its ground because, for now at least, the hype looks justified. Maybe it won't be and the price will fall back but we'll see.
Since then AVB has come up to 750kT of mostly inferred resource. Management have now set some ambitious targets but maybe "sophisticated" investors are unconvinced that the mining hype is worth more than the drilling hype. Maybe investors don't believe that AVB can build a bottom quartile mine, given that they've seen the drill hype fade to an acceptable but unexciting resource.
Here are some thoughts:
DEBT VS EQUITY.
If the AVB mine is such a no brainer honeypot, that doesn't mean that lenders will be falling over themselves to give money, it means lenders will be pushing for as big a piece of the pie as possible. Why lend 50 million at 5% when you can get some of those nice juicy returns for yourself? There mightn't be a cap raise, but any sort of farm in is likely to be dilutive. Remember, everybody else is as selfish as you are.
CORNERSTONE INVESTORS
Are in it for themselved. Vale got a sweet deal on a lump of land for a fixed maximum price regardless of the contained resource and no trailing commissions. See IOH for a lesson on how to do this kind of thing properly. Xstrata got someone else to pay for their drilling AND got free equity for their troubles. If either Vale or Xstrata come to the party expect it to be dilutive. There are no white knights in this game.
BUILDING A MINE
Is not easy. Unless the bloke they hired can magically snap his fingers and make a mine appear, there is a risk that the final cost will be higher and the final efficiency will be lower than forecast. And given the time taken to get the trial mining licence, don't discount factors out of AVB's control like delays due to government. Just as having a good mining engineer doesn't by itself solve all your problems, having a good lawyer mitigates risk but doesn't eliminate it.
The reason AVB isn't SIR is because AVB doesn't deserve to be SIR. OK maybe SIR doesn't deserve to be SIR, but SIR hasn't had the chance to sour market opinion in the way AVB has.
While they may have recently improved at delivering on their promises, they haven't yet proved that they can deliver on their hype.
AVB Price at posting:
7.6¢ Sentiment: None Disclosure: Held
