Morning Mumble: Weekend'ish Edition & Challenging Read...a prize of insanity if you make it to the end!

Gone are the years where a JORC or drilling update were akin to a gusher in the Oil World. Quite a few small companies have come back with decent results recently, but the realities are common-sense. Two examples being TYM and IRON.

By looking at Tertiary Minerals (TYM) with the Maiden JORC Compliant Mineral Resource Estimate, there’s an evident problem. So the resource of 38.4 million tonnes grading 10.4% calcium fluoride (CaF₂) at their mine MB Fluorspar project in Nevada overall value.  The 38.4m/t’s is made up of 8.9 million tonnes grading 10.3% fluorspar (CaF₂) at 8% CaF₂ cut-off and JORC compliant Inferred Mineral Resource of 29.5 million tonnes grading 10.4% fluorspar (CaF₂) at 8% CaF₂ cut-off. Rather simple that part, 

So looking to the future TYM state they’re at the early stages of “metallurgical testwork” commencing on the drill samples with the aim of producing acid grade fluorspar. The Directors believe that further drilling will significantly increase the size of this initial Mineral Resource Estimate as well as upgrading most, if not all, of the Inferred Resource to the Indicated classification.

So after the JORC update, the company announce on Thursday 24^th April “The Directors of Tertiary Minerals note the recent downward share price movement following the positive announcement of its maiden JORC compliant Mineral Resource Estimate etc…etc..”

Well the reason is not just based on the “share appreciation” for TYM, but more so the fact they have a EFF (Equity Finance Facility). This is the reason I am short TYM, perhaps the Directors will realise the negative elements of these facilities. So not withstanding any positive news coming forward, the share price will stagnate and drop lower (slow spiral) helped on its merry way via the EFF and Equity Swap. TYM came to my trading attention when Darwin excised their warrants back in February/March. Don’t get me wrong it’s a good company, merely with the wrong funding in place in my opinion. So the excise of warrants, issue of shares and limited forward news in the interim everything is priced at the moment. So much so, I’d consider 7.5p to be the limit notwithstanding any news. Perhaps the company would be wise to raise at 7.5p say £8M based on the progress and consolidate (not the shares) the company’s position.

Then Ironveld announce the Publication of Definitive Feasibility Study. Yes it all looks good does it not (Copy & Paste from the announcement):

·     The Study confirms the Project's viability to deliver an exceptionally high grade iron product (99.5% Fe) called High Purity Iron ("HPI") which commands a premium to the pig iron price.

·     Vanadium and titanium slag containing commercial grades of vanadium and titanium will also be produced and sold.

·     Project life is in excess of 100 years and highly scalable.

·     Ore from the main magnetite layer on the Company's properties can be fed directly to the proposed smelter without the need for beneficiation

·     20MW of power available on site by year-end 2014 from an ESKOM substation adjacent to the Project area

·     Study shows the ability of the Project to deliver an annual turnover of GBP 26.4 million with an EBITDA of GBP 8.1 million per annum (based upon current costs and commodity values)

·     Project is also projected to be cash flow positive from the commencement of production

·     The capital expenditure is projected to be approximately GBP36 million, a proportion of which will be funded out of early cash flow from the Project

·     The robust nature of the Project has attracted interest from a number of Capital providers,  the Company is in advanced discussions with banks, other financial institutions and industry who are interested in providing the necessary capital as part of capital equipment and/or offtake agreements for  the Project's HPI, vanadium and titanium.

So when looking at this and breaking down the detail IRON give don’t give any economic figures despite this being a “definitive feasibility study.” Perhaps someone can advise them that definitive includes financial details, but alas that’s no doubt saved for the “interested” parties despite being shareholder essential information.

So if we ignore the ESKOM issues which contradict the 20MW’s of power being available onsite by year end 2014 (December). A basic knowledge shows the ESKOM issues and please remember there’s a lot of strikes at the moment so reduced demand on ESKOM.

Ironveld state: “The capital expenditure is projected to be approximately GBP36 million, a proportion of which will be funded out of early cash flow from the ProjectA £36m 15 Megawatt (MW) Direct Current smelter will be capable of producing a little over 40,000 tonnes of High Purity pig Iron, 415 t of vanadium in slag and just over 8,000 t of TiO₂ in slag, per annum for up to 100 years from late 2015. “

At current prices, this is capable of generating £26.4m of revenues and £8.1m of Earnings Before Interest, Tax, Depreciation and Amortisation per annum. They state this is based on upon current costs and commodity values. So what are their figures, currently an average of £255 per tonne for Feb, March and April would be wise (£10.2M likely revenue) for Pig Iron, and the slag prices vary widely, but by apply 30% discount to market prices would seem reasonable. Vanadium is currently averaging £15.77p/kilo and TiO₂ not less than 90% at an average price of £2,204.62 a tonne ($1.65 a lb). So if you give a 20 year mine life, the IRR isn’t something to get excited about at current prices. Price rises have been far from accepted globally, maybe 19% if you’re bullish with the numbers and don’t forget the BEE (Black Ethnic Empowerment)…at 26% reduces that further to some 13%?

So a thought for those still awake, with the price rising it was rude not to take a short interest. I received stock via slp for the divestment which I threw out at a significant premium and maintained a short. Now with the numbers and absence of financial data, one cannot help but wonder if the price is over excited for the realities of the project? £1.4M plus loans won’t get them very far. So if one was to use a ‘best case scenario’ a mere 15% of costs are likely to be funded via cashflow for IRON the IRR is reducing further. Viable asset, but be aware of the realities rather than the expectations.

Atb Fraser