Investment Case Conic Metals regarding RamuI have now analyzed the investment case again in depth. Core finding: In order for the investment to be profitable, it needs at least a nickel price of> 7 $ / lb. Currently $ 8 / lb.
Now in detail:
In order to be able to understand the business case of Conic Minerals, a distinction must be made between the two levels:
a) Ramu Mine / Refinery as a direct investment of 8.56% resp. 11%
b) Conic Metals as a company
a) To Ramu as a direct investment
This has already been written about in detail. The facts are clear: As of 9/30/2020, Conic had a "non-recourse" debt of around USD 105m. This debt is made up of an operating debt and a construction debt. The interest rate is 5.05% p.a.
As soon as the operating debt of USD 24.8m has been repaid, Conic can dispose of 35% of Ramu's surplus - up to its 8.56% share. Formula: sales revenue minus production costs minus sustaining CAPEX. As soon as Conic has repaid the construction debt in full, Conic can dispose of 100% of its share. The share then increases automatically to 11.3% - on a monthly basis.
b) Conic Metals as a company
In its income statement, Conic must show other factors separately, taking into account the accounting regulations. This applies in particular to interest payments and depreciation. As a result, the current surplus ex Ramu is significantly reduced and the profitability of Conic Metals is superficially decreasing.
But neither the interest payments (are added to the debt) and certainly not the depreciation affect Conic's cash. But the taxes are then inevitably levied on the adjusted (lower) result.
On the development of Conic's debt to Ramu:
As of 9/30/2020, Conic has reduced its debt by around USD 18.3m. For this, Conic was able to use the excess ex 2019 of 17.2m USD and the excess ex 1st half of 2020 of 4.6m USD. In addition, there was interest of around 4m USD.
P.S. I didn't look for the reason for the difference of 0.5m USD between 18.3m USD reduction in debt and excess minus interest of 17.8m USD.
It should be noted that in the first half of the year the nickel price was below $ 6 and the cobalt price was below $ 14. Now the nickel price is $ 8 / lb and the cobalt price is $ 16 / lb.
To the prospects:
Conic Metals confirmed in last MD&A that it can be assumed that the operating debt can be repaid in full by 2021. From 2022 Conic Metals should receive more than 7m USD free cash ex Ramu - at today's metal prices and the same high production. In the corporate accounts, however, the depreciation can again be claimed: The cash remains, but the tax is only charged on the net profit.
My expectations from the management regarding Ramu:
If my analysis above is correct, the entire $ 105m debt should be repaidas soon as possible. This increases the Conic share from 8.56% to 11.3%. With the predicted surplus of 21.2m $ p.a. at 8.56%, that amounts to around 28m $ or 6.8m $ more p.a. The interest rate is 5.05%.
With this starting position it should be possible to arrange a financing of 100m $, where the shareholder value - due to the immediate increase from 8.56% to 11.3% could be increased. I am aware that the Cobalt 27 tried to arrange this deal with the streaming deal with Highlands Pacific 2019, but unfortunately failed for known reasons.
urai58
P.S. This is a copy paste of my post in the German-language Forum wallstreet-online.de, where I have already written several posts about Conic Metals in the last few days.