Speccy thanks fo your post and yes I have have experience in the mining industry. You/your group have obviously been shareholders for a while. I’ve been a holder since mid-late 2017.
I’d be the first to say that there are certain aspects of Aeon’s managment’s lack of marketing of our company to the investment community leaves quite a bit to be desired for non-OCP shareholders.
In relation to the NCZ deal however as I mentioned before the devil is in the detail: The first question is to ask yourself why would a large mining company like MMG pay a large amount of money to get rid of operations. They would have been much better out carving up assets and selling off piece by piece. The clear reason is that they value the disposal of the environmental liability much higher than what they got rid of it for. This is MMG’s announcement for the disposal of the mine:
If you look at page 7 it outlines the value of Century that MMG had in their books. After all the value/assets that you mentioned the net value of the Century mine on their books was negative (-US$148M). The full liability is US$332M!!!!
Couple of other points as well (mine in bold) * Slurry pipeline from Century to Karumba (to avoid the trucking issues that some HC posters are concerned about). This is an old pipeline. This was repaired prior to resuming production with NCZ. It also needs to be regularly checked to ensure parts of the pipeline are not worn. Not saying NCZ can’t/don’t do this but this is what can happen if not done properly/regularly: http://www.mmg.com/en/Investors-and-Media/News/2009/10/05/Zinc-spill-from-Century-pipeline.aspx?pn=43&backitem=BA5603A202CE4D1E848FABA9D1339247. For MMG they could handle the costs because they are a large multi asset/Chinese state owned company - but imagine if that happened with NCZ or AML. Company would go straight into administration IMO.
* financial assurance bond with the QLD Govt for up to 10 years If you look at the detail of the bond guarantee MMG provided (page 6) - NCZ have to replace the bond with at least 40% of EBITDA from their operations until the whole amount is replaced. So they still have to pay tax/interest costs on top of the 40% until the guarantee amount is replaced. Again if their recoveries do not improve or have significant disruption to their operations they are in serious strife here since the guarantee cover by MMG ends in 10 years regardless even if they have not covered the full liability through their operations.
* Plus the contained metal in the included tenements (with grades up to 50 % zinc plus significant exploration upside). Some of the tenements have aboriginal/heritige areas which would turning these deposits into mines very challenging if not impossible. One again has to wonder if there were these resources/deposits available that could have been mined by MMG - why didn’t they.
* Plus icing and cherries on the cake like 38,000 head of cattle (valued at about $38m) and pastoral lands. This asset still has not been sold - given that NCZ could have used this sale to partially fund the resumption of the mine one has to wonder why they didn’t do that. Cattle and pastoral lands don’t seem that hard in terms of assets to sell off in a 2 year timeframe. Again something else doesn’t really add up here.
Sure the NCZ team argue that by their process they can reduce the environmental liabilities. If they don’t improve the recoveries they will run into cash flow problems very quickly and the market will revalue the company accordingly. They recently had to restructure their loan arrangement and now their loan is secured against their assets - so who knows it things turn out badly so AML may get a second bite at the cherry. Their next quarterly should be interesting.
AML likely wanted to purchase the assets without taking on the liabilities (or full liabilities). I don’t blame them for that. It would be a much worse proposition to bite off way more than you can chew and then lose both Walford Creek and all the Century assets if things went bad!
I’d also hazard a guess that OCP may not have approved of the deal where they had to take on liabilities as well (especially without in-house experience). Sure you can have consultants but if they screw up you/your company are still on the hook and you would have to fight it out in court - by the time you do that you are bust.
Re the PEA: they had a minelife of 6 years using the higher grade which was only around 6Mt at the time. This is an extremely short minelife. I imagine the ‘site admin’ probably relates to the diesel plant and other ancillary plants they are using contractors to operate (again agree not 100% clear)- they mention they assumed diesel power for the PEA of 6 year project life. That was probably the cheapest and viable option for a 6 year minelife project - however goes without saying the OPEX cost of using diesel plant for power is extremely high. Obviously the larger/longer minelife the more it makes sense to look at getting a grid connection/solar (so energy costs should be chalk and cheese for the PEA vs Feas Study). The larger the project the more the costs on a per/mt basis should reduce. The lower grade mines exist because they process extremely large volumes of ore and produce large volumes of copper. Their power costs are also usually quite low and fixed mining costs are averaged over a larger copper resource.
On the 68% Co recovery they did disclose that in the notes to the new resource. Again perhaps they did not receive the final info from their met tests but agree its not clear where the 68% comes from.
On the other points the management are fair criticisms regarding the relative lack of promotion, close relationship with OCP & very generous share incentives.
The saving grace is this:
We have a world class deposit polymetalic deposit with cobalt and the size of the resource should only increase with more exploration.
OCP Asia are a hedge fund with very limited experience in mining companies, they only fell into this position due to Tinkler’s debts - their bread and butter is property debt funding. Their end game is exiting at a very large profit. It would make very little sense buying on market otherwise like they have over the last few years.
Hamish Collins & Paul Harris also have a lot to lose if they don’t maximize the value of their AML shares.
AML Price at posting:
28.5¢ Sentiment: Buy Disclosure: Held
(20min delay)
