Yangibana

[#30]

Yangibana

Hastings share price has fallen sharply over the past few days (down -30% from $2.10 at close on Friday 26 May to $1.46 at close today Thursday 1 June) following the market update yesterday which communicated higher than previously announced capex and pivot in strategy to a staged development approach.

Construction cost increases are widespread across the industry at present with elevated inflationary pressures, labour capacity constraints, and supply bottlenecks well reported. This is a function of external market forces impacting the development of Yangibana while the longer term expected cash flows from the project are broadly unchanged with the demand supply expected narrative intact for the medium-term if/when Yangibana is in production.

The more concerning hurdle in my opinion is funding the Yangibana development in the more recently tighter financing environment as lending appetites evolve in context of higher interest rates.

An additional $850,000,000 is expected to be required to fund Stage1 Yangibana mine and beneficiation plant, Stage2 hydrometallurgical plant, and repay the Wyloo $150,000,000 exchangeable notes due in 2025.

Could a large miner with strong cash flows cornerstone Hastings? A large miner such as BHP, Rio Tinto, Glencore, or pretty much anyone willing to provide finance at a ‘goodish’ return on (maybe 12% p.a.) via a secured loan against (maybe 50%) of the Yangibana project.

A loan of $850,000,000 over a 7-year term at 12% p.a. interest charged monthly and paid at maturity would require a repayment of $1,960,714,332 by Hastings in 2030 (maybe the loan term is between October 2023 to October 2030).

If Hastings can generate an average of $390,000,000 profit per year between 2025 and 2030, then it would have $1,950,000,000 by 2030.

Yangibana would need to average 29,600 tpa concentrate production at 26.3% TREO grade sold at US$79 per kilogram converted at 1AUD=0.75USD and opex of AU$50 per kilogram over the 5-year period 2025 to 2030.

Any such financing option would likely mean no attributable returns to shareholders until after 2030 as the majority of free cash flows generated in the 29,600 tpa modelled scenario would be used to repay the debt facility. However, Hastings would have a more firm path to delivering Yangibana and there wouldn’t be any equity dilution.

If Hastings deliver a profit after tax of $390,000,000 in 2031, this would equate to $3.00 per share (129,276,652 shares on issue as at today, 1 June 2023). At a share price of $12.00 would equate a price-to-earnings ratio of 4.0 and a market capitalisation of $1,939,149,780. At a 40% dividend payout ratio, could distribute $1.20 per share in annual dividends. A share price of $12.00 in December 2031 would equate an annualised return of 23.2 per cent per annum exclusive of any potential dividend distributions (from around $2.00 today). This would be a superior outcome to guesstimates previously made in Post #68068275 and #68067591.

Of course, if alternate funding is sourced either via debt or equity raises at higher/lower prices or advanced in partnership with a third party, ultimately the number of shares eventually issued would vary and augment the return profile. Variance in future profitability would also impact future returns and valuations.

The big influences on the Hastings business will be composition of funding, the development through construction timing and costings to reaching nameplate production grade and volume, and market commodity pricing.



— DK.. just some thoughts, do your due diligence and decide your own actions.