Answering your post should provide a perfect illustration of the points that we have been trying to make regarding the quality of AML management and the real necessessity of significant improvement and/or change moving forward.
At first blush, the link that you provided in your post might seem to indicate that, as you say, “management didn’t “stuff things up” as much as implied.”.
However, we’d be interested in your response when made aware of the following:
This deal is now commonly referred to by those few in the know as “the deal of the Century”.
It was in fact unbelievably generous which is why NCZ, who quickly signed on after AML mgmt unquestionably stuffed up, was quickly valued by the market at $650m. i.e. NCZ went from nothing to $650m from Aug 2017 to Oct 2017 (3 months) as the market was made aware of the magnificent deal that MMG had offered to offload the Century plant and its surrounding assets (so MMG instead could concentrate on their Dugald River resource).
The centrepiece of the deal was the Century plant which can process 7mt/pa and has a replacement cost of circa $2Billion.
In addition, MMG offered:
-Airstrip: sealed all weather and fully operational
-Roads: dual lane, all-weather, sealed roads
-Accommodation village – 700 room capability
-Communication & IT: fibre optic cable
-Vehicles: extensive fleet of light, heavy and general utility vehicles
-Site Buildings: administration, technical offices, mining buildings, workshops, warehouses, training facilities and a large laboratory
-Power: existing high voltage grid plus transformer yard and substation.
-Water: evaporation pond
-Slurry Pipeline: 304km underground pipeline to the port
-Port: large scale facility with concentrate dewatering and drying, 80,000t mechanised storage shed
PLUS:
Major in-situ JORC mineral resources:
9.3 Mt at 10.8%ZN + Pb including:
Silver King 2.7Mt @19.4%ZN
East Fault Block 0.5Mt @12.7%ZN
South Block 6.1Mt @ 6.8%ZN
PLUS:
Tailings Dam 77.3Mt @ 3.1% ZnEq
PLUS:
Significant Further exploration potential
PLUS:
-38,000 head of cattle (valued at A$38Million) + cattle stations (539,000 acres)
PLUS:
A$34.5Million MMG Support payments
A$12.1 Million Gulf Communities Support Trust Fund
A$193 Million Financial Assurance Bank Guarantee
SUMMARY
-production in 2018 (top 10 zinc producer in the world).
-design capacity of 264,000tpa of zinc in 507,000tpa of concentrate (52% zinc).
-NPV A$1.31 Billion and IRR 270% at long-term zinc price of US$ 1,25/lb
-one of the lowest cost global zinc producers (C1 US $0.38/lb, C3 US$0.50/lb).
Now significantly, none of this information was provided by AML mgmt to SH. In fact, we were led to believe that AML would acquire Century as, even without the knowledge of the extremely generous package that MMG were offering, the deal was viewed by SH as a “no brainer” with the Century plant is only about 100km from Walford Creek.
Moreover, we were told by mgmt that the QLD Govt wanted to reopen the plant to employ locals and would upgrade the roads between Walford Creek and Century and issue a remediation moratorium to facilitate AML’s acquisition of Century.
Then suddenly, and without any information or discussion, AML mgmt announced (26/10/16) that “Aeon was unable to pursue a transaction based on MMG’s preferred structure which involves taking on all the assets and liabilities”.
MMG wanted to offload the Century plant and all its assets and liabilities, so they offered a total package – take it or leave it...?
Now significantly, AML had about TWO YEARS to do due diligence with full co-operation from MMG including access to their data room before arriving at their mind numbing decision to only offer to take part of the package!
Of course, this didn’t suit MMG who put the package together with all of its incentives so as not to have to break it up in a fire sale (and, not surprisingly, MMG have recently copped criticism from their own SH for being too generous with this package).
Very soon after AML effectively walked away from the deal, the now listed NCZ consortium was put together and acquired the deal of the Century from MMG.
When the market was told about this unbelievable acquisition package that NCZ now had, NCZ’s market valuation went from nothing to $650m!!!
Yes, there were going to be costs for environmental rehabilitation and remediation but these were overwhelming compensated for by the rest of the package of production plant, mineral resources (with Zn grades of up to 50%), cattle and properties and significant cash payments from MMG. i.e. the deal was overwhelmingly cash positive!
The market is always the final arbiter of valuations and NCZ has now been consistently valued at $650m for a year now. i.e. the cost of the remediation has been priced in.
However, unfortunately for AML SH, there’s a lot more pain:
Century is about 100kms from Walford Creek. The deal was therefore even more compelling for AML.
We didn’t need to build a production plant! Century is 7mt/pa! Plus has an underground pipeline to the port and all other fully operational infrastructure. PLUS NCZ will be back in production at Century THIS YEAR (saving AML years of time, consultants, capital raising, plant construction etc. etc.).
Lets say this is worth an additional $500m (very conservatively) to AML.
This puts the cost of management’s massive blunder at $650m + $500m = $1.15 Billion!
This was definitely “The Deal OF THE Century”!
Now, perhaps you can see how easy it is for SH to be misled by bad mgmt?
Salpetie, the link that you provided in your post demonstrates just how misleading and deceptive blindly following what mgmt want you to think can be.
Perhaps now you’ll understand why long-term AML SH are so disappointed in how AML is being run (or not run)?
You said in your post that it would have been a real stretch for a relatively cash poor mob to do the deal.
However, the deal was cash positive with MMG providing cash ($34.5m) PLUS all the rest of the very significant infrastructure and incentives (hell, even the 38,000 head of cattle were worth $38m as they’re $1,000/head)!
IMO, this is mind blowing incompetence and again unfortunately, this is not an isolated example of the very poor management; there are many others which, (although tempted) we won’t go into at this stage.
SH need to stick together where possible for the common good.
Walford Creek is a magnificent resource and yes the drilling/geology is going very well. However, bad mgmt can easily ruin what is an otherwise world class opportunity.
Similarly, as above, at first blush all seems good with the drilling. However, those of us who (as you can see) follow this very carefully are justifiably concerned that mgmt’s timetable is really to drag this out for the next few years as this suits their personal motives.
Even a great and otherwise very potentially profitable resource can be ruined by incompetent mgmt costings at PFS, DFS or BFS stage.
If you want proof of this have a look at the PEA which this same mgmt put out. Perhaps, you’ll allow me to summarise in the interests of brevity in reporting that it featured the highest mining costs in the world (and for what was then a relatively shallow open pittable resource). It also used Cobalt recovery rates of under 50% as against all other Australian peer deposits which are all around 90% recovery. In brutal summary, is was again, totally incompetent and cost SH dearly.
This starts to feel a bit like a similar scenario to mgmt walking away from the deal of the Century (as detailed above) don’t you think?
It’s not a case of being consumed by the past because only a fool does the same thing over and over again and expects different results?
AML Price at posting:
37.0¢ Sentiment: Buy Disclosure: Held
(20min delay)
