We enjoy your posts, and in particular your insights and your obvious experience in mining.
However, we’ll probably have to agree to disagree about the deal of the century.
Let’s touch briefly on that before we try to make what is a more important point.
Absolutely, there was and is some risk associated with tailings recovery and also that associated with taking on risk/debt, however, in our view the upside easily should have swung the deal for any ‘go forward’ Board acting in the best interests of their SHs.
And, clearly, the market agreed because when the market became aware of just how generous the MMG deal was, it valued this new entity at between $400-$500m.
Clearly this is a massive (and continued to this day) endorsement of the deal.
Irrespective of any associated risks, it's hard to dispute the value of:
* The world class 7.0Mt/ pa processing plant
* $34.5 in cash payments over 3 years
* Slurry pipeline from Century to Karumba (to avoid the trucking issues that some HC posters are concerned about)
* Substantial port facility at Karumba$193.7m
* financial assurance bond with the QLD Govt for up to 10 years
* Plus the contained metal in the included tenements (with grades up to 50 % zinc plus significant exploration upside)
* Plus icing and cherries on the cake like 38,000 head of cattle (valued at about $38m) and pastoral lands.
This is without even mentioning the zinc tailings.
Again, the market has consistently valued this package at $400-$500m.
However, if you’re looking at it from AML’s point of view, acquisition would have been considerably more advantageous.
The Century plant is only about 130kms from Walford Creek.
This would have saved $ hundreds of millions in capex and years of time and consequently increased the value of Century significantly to AML.
Plus, the AML Board had a TWO YEAR head start with ample time to do due diligence.
They were made aware of the value of the overall enterprise including the additional ore reserves in the surrounding leaseholds (which are also very significant).
More to the point, they told shareholders that the deal was imminent along with interesting supporting facts like the QLD government offering to upgrade the road between Walford Creek and Century to help get the plant back in production.
Then without any warning whatsoever, Paul Harris suddenly announced that AML were pulling out without any proper explanation to SHs.
Now, as long term and significant SHs, we view this as completely unacceptable.
Vector, the points you make about the tailings dam are interesting and no doubt some specialized experience is necessary.
However, as AML mgmt hire consultants for just about everything else, why couldn’t they do so for this especially given 2 years to do due diligence?
The real issue from our group’s point of view is who’s interests were they acting in? (particularly as one admitted that their main concern was that they could be held personally responsible for environmental remediation).
If true, in our view, this shows a considerable experience deficit in addition to a lack of consideration for shareholders’ best interests.
So, in summary, a total package and operation consistently valued by the market at $400m+ in and of itself, plus, for AML, a world class 7mt production plant and pipeline to the port (a little over 100kms away from Walford Creek).
How much would that cost to acquire? Oh wait, you don't have to pay for it, instead MMG pay you to take it!!!
What sort of Board would walk away from that?
Once aware of what happened, everyone that we've spoken to reckon that Paul Harris and Hamish Collins walked away from the "Deal of the Century" (and, perhaps not surprisingly, now refuse to answer shareholders' questions)?
Now, giving credit where credit is due. The AML geo team have done a really good job. We are very excited about the resource which we consider to be world class.
That is not the issue.
In our view, the market’s valuation of this resource is being held back by the market’s view of management and also by the overall lack of awareness of AML (still kept under the radar).
Our group has consistently tried to get management to increase awareness of Walford Creek outside the old-fashioned confines of a few ASX anns and broker presentations but we have met with steadfast resistance.
We have written (pro-bono) proposals to do this (which weren’t even acknowledged).
Where we can, we’ve tried to do this ourselves e.g. we convinced Matt Bohlsen (Monthly Cobalt News) to cover AML, but again, in an insight into mgmt/Board motivation, when asked to write to Matt to correct some misinformation provided to him by another Australian Cobalt company which severely understated AML’s resource, they refused!
In our collective experience, this is a very unusual situation.
Also unusual is the Board's relationship with OCP.
At the AGM it was revealed that the Board had “negotiated” and recommended a loan deferral with OCP in a deal that amounted to something like a 50% interest rate equivalent benefit to OCP!
In return, the Board awarded themselves 2,500,000 shares each and accepted OCP’s block vote (30%) virtually guaranteeing that they got their shares (i.e despite OCP being an associated party?)
Given this, shall we say, very close relationship between the Board and OCP, shareholders asked many questions at the AGM.
Most went unanswered, however, Paul Harris did repeatedly state that OCP’s motives were above board and that shareholders shouldn’t be concerned as whatever they do would benefit all shareholders.
He said: “OCP are not interested in taking this company; they want to get out for maximum profit. It’s likely around feasibility time someone will make an offer for their shares and all shareholders will benefit.
Now that sounds promising particularly as Harris also confirmed in response to a question that he had previously knocked back requests from major miners for information and access to a data room because he didn't think it was (then) the right time to be taken out as the company had the ability to undertake substantial resource improvements which could increase its value (i.e. the 2018 drill program).
So, around feasibility time there shouldn't be a shortage of offers!
Our concern here is with the timing of the feasibility study and with the inputs to it as both are of crucial importance.
Concerning the timing: Just before the AGM, there was an AML presentation on Oct 17, 2018 which provided a target date of Q2, 2019 for the feasibility study.
Then, 3 weeks later, at the AGM, Hamish Collins was asked if he stood by that date.
He responded "maybe Q3"!
Now, the date seems to have floated again to (some time in) 2019?
Then, of course we need the ability to do a proper study.
Despite the falling cobalt price, the metallurgy is very important to get recovery rates.
At the AGM, Hamish Collins admitted that the metallurgy was running months late, why? “our suppliers have let us down”.When are you expecting the results? “I don’t know", he said!
Now, it is interesting that in Bell Potter’s latest broker report (dated 1/3/19), they use a 68% cobalt recovery rate.
The report says “For the first time, progress on metallurgy test work has enabled the estimation of a copper equivalent grade” and go on to use the 68% cobalt recovery rate in their calculations.
Does this mean that there should have been an AML ann about this important recovery rate? (disclosure rules)?
Again, we view both the timing and the accuracy of the feasibility study as being of critical importance.
Somehow, we have to ensure that there isn’t a repeat of the 2017 PEA.
Yes, the PEA was a 'preliminary assessment' but nevertheless it might be indicative of the company’s ability and approach in doing a feasibility study.
Hopefully not, because in our view the PEA was a complete farce as we believe the facts show.
Finally released in 2017, it was 2 years after first promised but the real problem was with the study itself.
At the time, this was for a shallow scoop and truck, open pit 1.4% CuEq deposit.
Somehow, the costs in the PEA came to the equivalent of 1.2% CuEq and rendered Walford Creek uneconomic at that time.
These incredible costs included $7.6million for "on-site administration costs".
Seriously, $7.6m for on-site admin of an open cut mine?
To put this in perspective, in 2016, according to a meta analysis done by Princeton University, the average equivalent copper grade being profitably mined around the world was 0.5% (e.g. both USA and Canada also average 0.5% and more recent estimates have this average grade dropping...).
If all these mines used equivalent costs to the AML PEA, they’d be out of business.
In the meantime, industry publications have reported that Cu can now be profitably mined down to 0.2% due to improved production techniques and costs.
The PEA was justifiably met with humorous derision at the time and the Board quickly blamed the consultants they’d hired to put it together.
However, shareholders are entitled to question what sort of mining company board would sign off on such a feasibility study?
So, 2019 should be an interesting year for AML.
Harris also said at the AGM that he now had other options to fund more drilling and the feasibility study and another dilutionary raise was unlikely.
Hopefully, with increased awareness and collective consciousness of these issues, management will do the right thing by all shareholders and finally we’ll see a realistic valuation for this world class resource?
AML Price at posting:
28.5¢ Sentiment: Buy Disclosure: Held
(20min delay)
