Australia's largest stock trading and investment forum Australia's #1 stock forum

HRR

0.00%

4.5¢ heron resources limited

I was wondering what proportion of the $145m capex requirement...

First 80 Last

Share
Profile

Follow
Wyman Wells

315 Posts.

03/06/17

22:47

Post #: 25083516
Share

I was wondering what proportion of the $145m capex requirement the company can expect to source via debt financing. I thought c 50-60% as a ballpark, does this sound too optimistic

Also, I understand the co is looking for a new keystone investor to pick up a large slice of new equity (and hopefully a rights issue to soften the blow for current holders). Do you think it's realistic a new major holder will pay above the current SP (considering recent declines largely in anticipation of forthcoming dilution)?

Originally posted by PamplonaTrader ↑

Eight years is generally viewed as the minimum requirement for mine life.  HRR can explore to expand the resource and replace reserves while mining underground.

In a low interest rate environment and with commodity prices rising, debt is attractive. Unfortunately, the company is under-capitalized and lenders will not be able to underwrite a large enough facility to fund the debt portion of CapEx... so unless the share price appreciates considerably, the priority should be preserving cash to minimize equity dilution.

The sensible move is to secure an off-take agreement with smelters and commodity trading firms.  My understanding is that conversations are ongoing.  They should not have much trouble, as smelters are hungry for feed... look at the very low tc/rc fees.

The problem here is that milling and recoveries are difficult to project.  Woodlawn, from what I hear, was a headache in its past life because of poor mill performance.  Heron intends to improve mill performance at Woodlawn by using ultra-fine grading similar to the process at Caribou mill.  The problem is, the Caribou mill (using a technique first developed over 20 years ago) is still falling short of expectations.

The other issue is that $144.2 CapEx seems to exclude sustaining capital. "Pay as you go", if you will.  A risky proposition if recoveries are uncertain.  You see this being played out time and again, companies under capitalized at start up and shareholders equity destroyed as a consequence.

While there are some questions and challenges, they are not insurmountable.  Heron Resources is uniquely positioned to take advantage of the robust conditions in the zinc market and, if they get it right, will provide very good leverage to rising prices.   I am a shareholder and plan to add once funding is in place and again once commercial production rates are achieved.

*Disclaimer:  Much of what I've written above was relayed to me by an engineer who had a prominent role in putting McArthur River into production.

Expand

Last edited by Wyman Wells: 03/06/17

HRR Price at posting: 8.5¢ Sentiment: Hold Disclosure: Held
Upvote

0 Great analysis

Reply

Top Stories

SS1

Sun Silver gets that drill to thrill feeling from high grade hits at Maverick Spring

PXX

Polarx discovers thick sulphide mineralisation at Alaskan Cu project

IBG

Ironbark eyes lithium and niobium opportunities with 7 new Brazilian projects

PGD

Peregrine extends high-grade gold shoot, sniffs anomalism at WA's Tin Can

ASX200 dives as inflation clocks in at 4% – higher than 3.8% consensus