In case it helps others decide whether to participate in the...

In case it helps others decide whether to participate in the shareholder offer, I have set out the reasons why I decided to participate.

I note that whilst my views on Hawsons are positive for both short term and long term, I am not a trader and this post is intended for those with similar views rather than those looking to trade short term.

The reasons why I have positive views on Hawsons are as follows:

1. I feel like the project has been reset and the focus is back to something that is achievable and economic. I have always preferred the rail to an existing port over the pipeline to an unbuilt port. The capital costs are lower and the development risk is much lower.

2. I believe in our Chairman, Jeremy Kirkwood. I see him as a quiet achiever. He set out his vision and plan at the AGM and is delivering on that plan. I also have confidence that he and the board will select a new Managing Director with the right skill set to manage and deliver the BFS.

3. The non-executive directors believe in the project and are each contributing to the capital raise more than one (and possibly two) years of after tax directors fees. This means that they would be working for free if they didn’t believe in the success of the project.

4. There is a global need for high grade iron ore in order to produce green steel. The only current technology that can produce green steel (other than recycled steel) is high grade ore in an electric arc furnace that uses by green power. Hydrogen based production is being developed, but requires commercialisation and production of large quantities of green hydrogen, methods to transport hydrogen to steel mills, and commercialisation of steel production with hydrogen. Therefore, high grade magnetite is the lowest risk option to be able to produce green steel in the near term.

5. Hawsons represents a low risk option for production of high grade magnetite in that:
a. The project is located in a politically stable country;
b. The project has access to labour, power, water, rail and port.
c. Whilst some drilling is still required to get a JORC resource for the near surface ore and revised mine plan, the drilling to date is confirming management expectations.
d. The ore can be processed using simple and known processes.
e. The ore can be transported using existing rail and port options.

6. I like the plan to bring in JV partners for funding BFS and believe that the potential JV partners know that if they want a reliable source of high grade iron ore from around 2030 they need to start taking action now given the time it takes to complete BFS and build a mine. Therefore, I believe there are good prospects of securing a JV partner or two in the short term.

7. Whilst the detailed project update and commencement of JV discussions had a short term positive impact on the share price, the lead balloon keeping the share price low has been the uncertainty of a capital raising event. The turbulence that this has created will shortly be over.

8. In the past when Hawsons has been in similar situations following a capital raise, Regal was involved and they sold into any good news. There is no Regal or similar institution with this capital raise. Therefore, any good news is likely to have a meaningful impact on the share price.

Having considered my reasons for holding HIO and confirmed my thoughts, the next question was to look at the benefits of contributing to the Shareholder Offer. Whilst I believe that it is always good to support a company that you believe in, there still needs to be enough upside for me to part with my money. And that is where the benefits of the options come in.

Under the Shareholder Offer, for every one share purchased at 3.3 cents, there is one attaching option with a five cent exercise price and an expiry of 30 May 2026. As I have said in other posts, the options double the upside where the share price is above five cents.

To highlight this, I have set out in the table below calculations assuming that the share price increases to 5 cents, 10 cents, 15 cents and 20 cents. The value of the option has been calculated as the value of the share less the exercise price of 5 cents (I acknowledge this is a simple approach to calculating the value of an option).



I looked at the above returns and decided that I wanted the leverage and potential returns that the options provide. Whilst the options will be listed and available for trade, it is uncertain how many options will be available for sale once they list (mine will not be available for sale). Therefore, if I waited until the options list, then I do not know how many options I will be able to buy on market and what price I will need to pay.

I therefore decided that the best way for me to get my hands on the number of options that I would like to hold, is to participate in the Shareholder Offer.

I acknowledge that my table above assumes an increase in the share price. Everyone will have their view on how much the price might increase, but I assume that anyone holding HIO shares is doing so because they believe that there is a good probability of the share price increasing.

Good luck in your decisions about whether to participate in the offer. However, please note that whilst the intended close date is 24 May, the Offer may be closed by the directors at any time and therefore could close early.