Whoopsadaysie, page-11

Hi Rhys,

I agree with Cashmeoutside in that there is no hard-and-fast rule.

I think this can also depend upon how desperate sector participants are.

For example, there is currently no rush for M&A within the gold sector and potential predators are waiting for prices to fall or projects to be de-risked before pouncing.

However, it seems to me that in the Cu sector it is very different, for quality plays of size:

(1) SOLG - this is a play on both the known Casabel deposit with what is shaping up as a massive Cu-Au porphyry system and also a huge ground position within a frontier location, geologically very similar to Peru and Chile. Here, both Newcrest and BHP have jumped to have a seat at the table prior to any de-risking of the project and for the ability to block a competitor from making a move (BHP needs more shares to achieve this). SOLG has only just released a maiden R&R for Casabel so is very early stage.

(2) NSU -  Lundien moved first after a PFS but prior to a DFS because NSU's Timok deposit is so good. It was a hostile action and the NSU BoD thought it was underpriced. It turns out it was, as Zijin has majorly trumped them paying for exploration upside as well.

As it refers to MOD, I think that they will certainly be on the radar of a lot of mid tier and major producers.

If you apply the parameters from the Au sector to Cu, a TO target requires:

(1) A solid IRR and material annual production
(2) Enough R&R to be noticeable in a consolidated format
(3) An AISC that will lower the consolidated AISC across all assets

The T3 project is a very attractive project in terms of IRR (39%). This will likely improve further if/ when additional reserves are found from the current exploration. Something to also note, is that a major or mid tier producer can further improve the IRR due to their lower cost of capital vs. a junior like MOD would be able to achieve.

I think that the T3 project (base case = 23kt pa) is a little low on the annual production volume, but I recall that management are talking about wanting to increase this to c. 40kt pa over time (multiple mines?). The expanded T3 case currently sits at 28kt pa.

Likewise in terms of R&R MOD need a minimum of 1MT of Cu to move the needle for a major (currently 600kt). My opinion is that it is very likely they will achieve this, and possibly by multiples in the fullness of time (Cupric c. 7MT). This could be a principal reason why an offer could be lobbed at MOD at an earlier stage than would otherwise be the case. The EM has proven highly effective and a pipeline starved Cu producer with a strong geological team can likely join the dots just as easily has we can.

A predator may act sooner-rather-than-later in an effort to not have to pay for any lb's that they see as likely to be added to MOD's R&R over time.

MOD's T3 project has an AISC over the LOM of US$1.36-$1.46 and a C1 cash cost of $1.22 - $1.32. This is likely going to improve materially if more R&R is added from either UG at T3 or from nearby domes.

When you look at this slide from a MMG presentation from 2017:



... you can see that MOD's T3 project sits at around the 35-40th percentile of the cost curve, right now. This, IMO, will be attractive enough for a mid tier (like Lundien or OZL) to be interested, but possibly not a Major.

However, IMO, MOD ticks all of the boxes to be very high up the list of TO candidates:

(1) Huge EV / T3 NPV discount .... EV A$80m vs. NPV _{(8, pretax expansion case)} A$529m ( 15%)

(2) Huge tenement package on a belt scale

(3) A very successful and analogous neighbour in Cupric with c. 7MT Cu defined

(4) An attractive project already defined which lowers risk and has reasonable p.a. production, R&R and AISC and an excellent IRR

(5) A proven exploration tool in EM that is demonstrably successful via recent drill hits

(6) Potential to have multiple mining hubs

(7) Excellent jurisdiction within Africa with good property rights and Canadian based mining code


For me, I am confident that MOD will get taken out for a price much higher than today's SP. I am also invested in SOLG (via DGR). Nobody cared up until last week that SOLG kept churning out drill results in the top 3 on the planet each week until BHP announced that they had bought a stake and Timok was taken out by the Chinese ... now suddenly lots of people care.

This, IMO, will be the same with MOD. Nobody will care until "suddenly" it is in play. It is, however, impossible to time so, for me, I am just going to be patient. At 1.4% of MOD (and exposure to MTR) it is too big a position to try and muck around with, anyway.

Cheers
John