Global Atomic – Vertaansa vailla oleva arvopropositio

TSX: GLO

Osakekanta 151,6M

Osakekanta täysin laimennettuna 168,9M

Osakkeen hinta CAD$0,61 (17.10.2020)

Täysin laimennettu markkina-arvo CAD$103M (USD$78M)

Global Atomic Corp (GLO) perustettiin 2017 kun Silvermet Inc. (Turkin sinkkioperaatiot/ Iskendarun) ja Global Atomic Fuels Corp. (yksityinen uraani yhtiö) yhdistyivät. (1)

GLO.lla on kaksi divisioonaa. Perusmetallit, joka omistaa 49% Iskendarunin sinkki kierrätyslaitoksesta Turkissa ja Uraani, joka etsii ja kehittää uraaniesiintymiä Nigerissä. Esiintymistä tärkein on Dasa.

Dasa Vaihe 1 – Optimized Preliminary Economic Assessment (OPEA)

2018 GLO löysi, tärkeimmästä esiintymästään, Dasasta nykyään Flank Zonena tunnetun alueen. Flank Zone on lähellä pintaa ja sen malmipitoisuus on erittäin korkea. GLO teki tietoisen päätöksen fokusoida energiansa Flank Zoneen.

Tämä päätös viivästytti aiempia aikatauluja, mutta 15. huhtikuuta 2020 GLO julkaisi pitkään odotetun teknisen raportin (OPEA) Flank Zoneen keskittyneestä kaivossuunnitelmasta ja osoitti että odottaminen kannatti.

A base case uranium price of $35 per pound, the operation generates an after tax NPV8 of $211 million and an IRR of 26.6%.

If we apply a long-term uranium price of $50 per pound, the Project IRR increases to 46.3% and the NPV8 to $485 million.” (2)

GLO valitsi tietoisesti 35$/lbs (pauna) base case hinnaksi teknisessä tutkimuksessaan. Tämä luku on merkittävästi alempi kuin GLOn kilpailijoiden (jopa Kanadan Athabaskanin 3 (Denison, NexGen, Fission) suuren) käyttämä. Ja tästä huolimatta DASA toimii ja sillä on erittäin korkea IRR.

Mikä on tätäkin tärkeämpää on se että Dasan Vaiheella 1 on erittäin matala CAPEX* (US$203) ja AISC** (US$18,39).

*CAPEX = Capital Expenditures eli tässä kaivoksen rakentamisen kustannus/ investoinnit.

**AISC = All-in sustaining costs eli yksinkertaistettuna kaikenkattava tuotantokulu per pauna metallia.

Nämä ovat erinomaisia tuloksia.

(3)

Mainitsemisen arvoista on myös se että OPEA on tehty pitkälti PFS standarteja käyttäen, eli sen tarkkuus on korkeammalla tasolla kuin normaalin OPEAn.

Tämän ansiosta GLO pystyi aloittamaan projektin luvituksen ja GLO jätti lupahakemuksen 28.09.2020. (3)

Mitä-jos

Tekstin lopussa on DCF malleja Dasan ensimmäisestä vaiheesta, mutta sitä ennen haluan aina rakentaa mitä-jos malleja joissa rakennetaan “normalisoitu” Dasan tuloslaskelma.

Kaikki luvut ovat USD.

Phase 1 normalized what-if
OPEX$14,87+10% as a contingency
Production Mlbs pa4,40
Uranium Price$35,00$40,00$45,00$50,00$55,00$60,00
Revenue (M)$154$176$198$220$242$264
COGS$65$65$65$65$65$65
Margin$89$111$133$155$177$199
Margin in %57,5%62,8%67,0%70,3%73,0%75,2%
Royalty %12%12%12%12%12%12%
Royalty in $$18$21$24$26$29$32
EBITDA$70$89$109$128$148$167
Depreciation$20$20$20$20$20$20
Taxes in $$13$17$22$27$32$37
Net Profit$38$52$67$81$96$110
GLO’s share of NP*$34$47$60$73$86$99
Sustaining CAPEX$7,5$7,5$7,5$7,5$7,5$7,5
FCF GLO’s share*$45$58$71$84$97$110

*Kun kaivosyhtiö perustetaan Nigeriin, Niger saa 10% osuuden yhtiöistä free-carrynä, eli Niger ei osallistu investointeihin, mutta omistaa 10%.

Tämä normalisoitu Vaihe 1 kestäisi vain 10 vuotta eikä sisällä joitain emoyhtiön kustannuksia, mutta luvut verrattuna US$78 miljoonan markkina-arvoon ovat hyviä. $50/lbs hinnalla Dasa tekee US$84 miljoonaa vapaata kassavirtaa per vuosi.

Verrattuna aiempaan kaivossuunnitelmaan, joka ei sisältänyt Flank Zonea, me saamme $50/lbs hinnalla 50-60% enemmän nettotulosta ja vapaata kassavirtaa.

Dasa vs muut projektit (CAPEX, IRR, NPV)

Halusin myös verrata Dasaa Madaouelaan (GoviEx (Niger)) ja muutamaan muuhun uraaniprojektiin. Vertailussa korostan prosessointilaitoksia, sillä ne ovat erittäin suuri osa CAPEXsta ja niiden koko on riippuvainen kaivoksen malmipitoisuudesta.

CompanyGlobal AtomicGoviExBannermanNexGen
ProjectPhase 1Flank ZoneMadaouelaEtangoArrow
CountryNigerNigerNamibiaCanada
Initial CAPEX (US$)$203$359$793$888
LOM Sustaining capital$73$317$282$152
Processing plant CAPEX$67,0$234,0$321,0$169,7
Plant size (tons per day)10004020555551039
Head grade0,54%0,10%0,020%3,09%
Average production Mlbs pa.4,42,77,225,4
OPEX per lbs$13,5$24,5$38,0$4,4

(1, 5, 6, 7)

Kuten yllä olevasta näkee merkittävä osa Dasan kauneutta vs. sen Afrikan kilpailijat on seurausta merkittävästi korkeammasta malmipitoisuudesta sekä suhteellisen pienestä myllystä (prosessointilaitos). Näiden johdosta CAPEX on suhteellisen alhainen, siitäkin huolimatta että Dasan uraanin tuotantomäärä on melko korkea.

IRR.n (Internal rate of return) ja NPV.n (nettonykyarvo) vertailu yhtiöiden välillä on tehty miltei tietoisesti vaikeaksi, koska yhtiöt rakastavat erilaisten diskonttojen ja tutkimusten base case hintojen käyttämistä. Olen siksi luonut alle standardoidun vertailun $50/ lbs ja $60/lbs hinnoilla, jotta projektien vertaamisesta tulisi helpompaa.

Global AtomicGoviExBannermanNexGen
Phase 1Flank ZoneMadaouelaEtangoArrow
Study price (USD)$35$70$75$50
NPV8%*$211$339$419$2 627
IRR26,60%23,50%15%56,80%
Long term base case $50/lbs$50$50$50$50
NPV8% (millions)$485$4−$400$2 627
IRR46,30%9%        neg56,80%
Optimistic long term base case$60$60$60$60
NPV8% (millions)$665$172−$84$3 302
IRR60%18%6,40%65,50%

*Täytyy mainita että olisi reilumpaa käyttää diskonttona 8% Kanadalaisille, 10% Namibialaisille ja 12% Nigeriläisille toimijoille, mutta tässä vertailussa käytän kaikille 8% diskonttoa.

Vaiheesta 1 Vaiheeseen 2

Tähän saakka olen käynyt läpi vain Dasan Vaihetta 1., joka keskittyy Flank Zoneen. Mutta Flank Zonen lisäksi Dasassa on yli 150Mlbs (miljoonaa paunaa) alemman malmipitoisuuden materiaalia joka voidaan ottaa käyttöön ensimmäisen vaiheen 12 vuoden jälkeen.

Dasaa voi ajatella 5 kantisena laivana.

Flank Zone avaa reitin kansille 1-3 (alakannet). Joten Vaihe 1. investointia voi katsoa osin etumaksuna Vaiheelle 2.

Kun Vaihe 1 rakennetaan tulee myös alimpien tasojen poraamisesta merkittävästi halvempaa ja helpompaa.

Heinäkuussa 2019 (8) GLO julkaisi Mineral Resource Updaten, josta näkee että Dasan alimmilla tasoilla/ kansilla (1-2) piilee potentiaalisesti toinen korkean malmipitoisuuden vyöhyke.

(12)

Tänään olisi erittäin kallista aloittaa tuon alueen poraaminen ja kartoittaminen, mutta kun Vaihe 1 on käynnissä tästä projektista tulee merkittävästi halvempaa.

Potentiaali toisesta korkean marginaalin vyöhykkeestä ensimmäisen 12 vuoden jälkeen on hyvä optio takataskuun.

Sitä odotellessa Dasassa on Flank Zonen lisäksi paljon louhittavaa uraania, vaikkakin alemmalla malmipitoisuudella.

Prosessointilaitos/ mylly on mitoitettu 1000tpd (tonnia per päivä) operaatioille ja toimii erinomaisesti kun malmipitoisuus on korkea. Mutta jos malmipitoisuus on 2-3 kertaa alempi tippuu tuotanto vähintään samassa suhteessa (eli 4,4Mlbs tasolta 1,5-2,2Mlbs tasolle). Tämä onneksi huomioidaan OPEAssa ja esimerkiksi myllyä voidaan laajentaa (ja laajennukselle on varattu tila) ainakin 2x. Potentiaalinen käsiteltävän tonnimäärän kasvu Vaihe 1 jälkeen on huomioitu myös muilla tavoin.

Aiempi PEA (Preliminary Economic Assessment) (9) fokusoi aiemmin tunnistettuihin alemman malmipitoisuuden alueisiin ja sitä voidaankin käyttää mutuilun tukena kun arvioidaan potentiaalista Dasan tulevaisuutta Vaihe 1 jälkeen, oletuksella että uutta korkean malmipitoisuuden vyöhykettä ei löydetä.

Phase 2 ”Shooting the breeze”
Head Grade (ppm)2 0000,20%
Recovery84%
Tpd2000,00*2x Phase 1
SG&A per tonne$36,00
Mining per t$71,00*high
Processing per t$51,00
OPEX/lbs$36,00
Production Mlbs pa3,20
Uranium Price$35,00$40,00$45,00$50,00$55,00$60,00
Revenue$112$128$144$160$176$192
COGS$115$115$115$115$115$115
Margin−$3$13$29$45$61$77
Margin in %−2,9%10,0%20,0%28,0%34,5%40,0%
Royalty %5%5%9%9%9%
Royalty in $$0$6$7$14$16$17
EBITDA−$3$6$22$30$45$60

Suurimmat erot OPEAn ja tämän välillä on tässä käytetty 3x heikompi malmipitoisuus ja alhaisempi talteenottoaste (84% vs 92%), sekä korkeammat louhintakulut per tonni (koska louhinta tapahtuu syvemmällä).

Tavoitteeni on osoittaa että Vaihe 2 ilman toista korkean malmipitoisuuden vyöhykettä ei tule olemaan läheskään yhtä taloudellinen kuin Vaihe 1. Mutta Vaihe 2. tulisi pidentämään kaivoksen ikää > 20 vuotta ja olemaan silti ekonomista realistisilla pitkäaikaissopimusten hinnoilla.

Minulla ei ole todellisuudessa mitään realistista tapaa mitata Dasan arvoa Vaihe 1. jälkeen, mutta voin sanoa että Dasassa on paljon lisää jo tunnettuja resursseja ja GLO on tehnyt toimenpiteitä, joiden tavoitteena on taata että siirtyminen vaiheesta 1 vaiheeseen 2 on mahdollinen.

Uskon myös että markkinoilla on potentiaalisia ostajia (Orano, Kiina), jotka laittavat preemion näille asioille.

Orano optio

Orano, maailman 3. suurin uraanin tuottaja, omistaa 2 prosessointilaitosta Nigerissä. Toinen niistä (Cominak) puuretaan luultavasti pian ja toinen (Somair) on toimii alikapasiteetilla. GLO on puhunut ideasta, että he voisivat lähettää materiaalinsa Oranon prosessointilaitokseen (Somair). Orano mylläisi malmin ja maksaisi GLOlle spot hinnan lopputuote paunoista.

Suurin etu GLOlle olisi ettei se tarvitsisi omaa prosessointilaitosta (US$67M) ja saisi merkittävän säästön kaivoksen alkuinvestointeihin.

Kaivoksen rakentamisaika ei lyhenisi, sillä maanalaisen kaivoksen rakentaminen on ajallisesti pisin vaihe ja prosessointilaitos voidaan rakentaa samaan aikaan maanalaisen kaivoksen kanssa.

Sanon tämän kuitenkin yksinkertaisesta, Orano optio on surkea.

Olen kuullut usealta lähteeltä että tie Dasasta Somairiin on heikossa kunnossa ja sen turvallisuus on kyseenalainen.

Logistiikkakulut per pauna olisivat luultavasti $2 tasolla ja Oranon prosessointilaitos on vanha eikä välttämättä yhtä tehokas kuin modernit laitokset. Olisi konservatiivista sanoa että prosessointi kustannus per tonni olisi >$100 (prosessointi ja toll-milling veloitus). Kokonaisuudessaan OPEX per pauna olisi luultavasti $7 korkeampi Oranon kanssa Vs. oma laitos. Vuositasolla OPEX nousisi US$31M.

Numeroiden valossa on lähes mahdoton päästä tilanteeseen, jossa Oranon optio olisi taloudellisesti perusteltu.

Lisätään tähän se tekninen seikka että uusi kaivossuunnitelma käyttää louhittua ja prosessoitua materiaalia kaivostunneleiden täyttämiseen louhinnan jälkeen (tämä on kömpelöä suomennosta seuraavasta: “plan is to backfill the mine using tailings”). Joten GLOn täytyisi kuljettaa materiaali takaisin Dasaan tai hankkia vaadittu täytemateriaali jostain muualta.

Orano optio rajoittaisi myös GLOn kykyä solmia pitkäaikaissopimuksia seuraavassa syklissä ja viime kädessä optio tekisi Dasan myymisestä vaikeampaa/ mahdotonta.

Seuraavat askeleet Dasassa

Kaivoksen luvitushakemus on jätetty. Lain mukaan prosessi kestää 6kk joten 2021H1 on realistinen aikataulu odottaa luvituspäätöstä.

Olen erittäin luottavainen siitä, että se hyväksytään. Uraani on Nigerin päävientituote ja Niger tarvitsee uusia kaivoksia korvaamaan pian sulkeutuvan Cominakin (2021) jättämää aukkoa. Nigerillä on myös pitkä historia uraanin louhimisesta enkä ole pystynyt löytämään uraaniprojektia, joka ei saanut lupia.

Vaikka luvat saataisiin 2021H1 aikana GLOn täytyy yhä toteuttaa PFS (pre-feasibility study) sekä DFS/BFS (definite feasibility study/ bankable feasibility study). Tavoite on, Stephen Romanin (TJ) mukaan, että kyseiset tutkimukset saadaan tehtyä 2021 aikana ja että kaivosta alettaisiin rakentamaan 2021 lopussa tai 2022 alussa (4).

Tämä vaikuttaa turhan optimistiselta ja ottaen huomioon aiemmat S. Romanin ennustukset olisin hyvin skeptinen aikataulusta.

Joten sanotaan että BFS olisi valmis 2021Q4 aikana, rahoitus vie 3-6kk, sen jälkeen 18-24kk Dasan rakentamiseen. Joten Dasa voisi olla tuotannossa aikaisintaan 2023 loppuvuodesta tai 2024 alkuvuodesta.

Osakeanti

2020Q2 lopussa GLOlla oli kassassa noin CAD$5M. GLO myös saa noin CAD$0,1M/ kk hallintopalkkioita sinkkioperaatioista.

Muutoin, vaikka sinkin hinta pysyisi US$1/ lbs tasolla on vaikea uskoa että GLO voi odottaa osinkoja Turkin sinkkioperaatioista ennen 2023 vuotta.

Viime artikkelissani lainasin S. Romania, joka sanoi

37:26 “I don’t think we need to ever actually come back to the market to develop the DASA project.

38:08 “We don’t really foresee having to issue more shares”. (10)

Viime haastattelussaan CruxInvestorissa hän sanoi (4):

20:56 “We probably will raise a little bit of money but timing wise for me the best time to do that would be subsequent of achieving our mining permit.(I.e. in early 2021)

“CAD$5-10M.”

Sanoin silloin bullshit näille väitteille ja pari kuukautta myöhemmin GLO olikin jo tekemässä antikierrosta ja keräsi hiukan alle CAD$4M 2020 alku kesästä. Sanon tämän koska olen oppinut että antien suhteen kaivosyhtiöiden lupauksiin/ arvioihin ei voi luottaa. Numerot kertovat totuuden eikä niitä pääse karkuun.

GLO polttaa käteistä noin CAD1,2M per kvartaali. Heillä on joukko exploration kohteita, joita heidän täytyy porata (lue käyttää rahaa) jos he haluavat pitää 100% maa-alueista hallussaan, mutta en usko GLOn käyttävän näihin kohteisiin rahaa.

He saavat tuloja (osinkoja) aikaisintaan 2023. Tällä välin heidän täytyy selvitä 10-11Qta ja viimeistellä tekniset raportit. Arvioisin heidän tarvitsevan CAD$19-21M ennen kuin kevät 2023 on lopussa (pois lukien mahdollinen kaivoksen rahoitus/ rakentaminen).

Heillä on CAD$5M käteistä ja he tulevat saamaan noin CAD$3,2M hallinnointituloja Turkista. He tulevat myös saamaan pari miljoonaa kun ulkona olevia warrantteja lunastetaan.

Mielestäni GLOn täytyy tehdä vielä 2021-22 aikana CAD$8-12M edestä osakeanteja. Uskoisin että puhumme 30 miljoonasta uudesta osakkeesta (täysin laimennettuna), jotta GLO on pisteessä jossa se voi elää täysin Turkin osingoilla, poissulkien tilanne, jossa uraanin hinta nousee ja GLO päättää edetä kaivoksen rakentamisen kanssa (jolloin edessä on toki suurempi anti, mutta täysin eri valuaatiolla).

Sinkin kierrätys: Iskenderun

Turkki on joutunut koville COVID19 (jms.) seurauksena. Perusmetallit ovat myös hyvin herkkiä globaalin talouden liikkeille, kuten 12kk sinkin hinnasta näkee.

En halua pyrkiä ennustamaan sinkin hinnan kehitystä tai sitä mitä Turkissa tapahtuu. Mutta voin pyrkiä arvioimaan sitä miten hyvin Turkin operaatio toimii ja sitä missä pisteessä minun sijoittajana tulisi alkaa olla huolissani.

2020Q2 MD&A.n mukaan Iskenderunin käyttöaste oli vain 71% 2020H1 aikana, samalla  kun sinkin hinta oli erittäin matala. 2020H2 ei tule olemaan kaunis. Sinkin hinta on noussut, mutta GLO arvioi 2020 käyttöasteen asettuvan 59% alueella.

Sinkinkierrätyslaitos käyttää materiaalin lähteenä teräsmyllyjen “jätettä”, teräspölyä, jonka saatavuus on heikentynyt teräsmyllyjen väliaikaisten sulkemisten myötä. Ilman materiaalia käyttöaste tulee olemaan heikko ja tämä, ei sinkin hinta, on kriittisin Iskendarunin kannattavuuteen vaikuttava tekijä.

2019Q4 MD&A sanoo: “The Turkish entities qualified for a 55% investment tax credit incentive on the TL 143.5 million qualified investment in the new plant…The total cost for the modernization and expansion is estimated at US $26.6 million.” (2019Q4 MD&A)

Modernisointi/ laajennus investointi maksettiin osin käteisellä ja osin velalla. GLOn osuus velasta on US$11,4M. Tästä summasta US$3M on pankkivelkaa ja loput velkaa GLOn senior partnerille Befesalle.

“ The bank loans mature in 12 months but are expected to rollover and bear interest at rates of 3.3% to 3.8%. The Befesa loans mature between May and December 2021 and bear interest at rates of 5.9% to 6.6%.” (2019Q4 MD&A)

Johto on vakuuttanut että velat voidaan uudelleen neuvotella niin että ne erääntyvät vasta 2022 jos tarve vaatii. Joten GLOlla on 2 vuotta aikaa maksaa velka (eli US$5,5M pa + korot).

Stressitestaamalla Iskenderunin näkee että sen ekonomisuus on kuitenkin erinomainen. Jopa alhaisella käyttöasteella ja >30% tavoitetta korkeammalla OPEXlla Iskendarun on yhä kassavirtapositiivinen. Mutta nyt tämäkään ei ole riittänyt. Iskendarunin käyttöaste tulee olemaan 2020 surkea ja talousvaikeuksien kanssa painivat teräsmyllyt ovat veloittaneet jätemateriaalistaan erittäin paljon normaalia enemmän (enemmän kuin 2008 talouslamassa). Tämä kaikki näkyy bear case skenaariossa.

Worst case on mielestäni että GLO ei pysty uudelleen neuvottelemaan lainojen takaisin maksua 2022-2023 vuosille ja sen täytyy toteuttaa osakeanti, jolla rahoitetaan lainojen takaisinmaksua. Olettaisin että kokoluokka on 5-10% laimennus, joka ei kaada sijoituskeissiä, mutta on ehdottomasti negatiivinen.

2020Q3 tulee kertomaan meille paljon. Tai oikeammin 2020Q3 MD&A (joka löytyy Sedar.com). MD&A paljastaa käyttöasteet ja antaa enemmän kuvaa todellisuudesta kuin Q raportti.

Uskon että 2020-2022 lähes kaikki kassavirrat tullaan käyttämään velan maksuun ja siksi 2023 tai jopa 2024 on realistisin vuosi sille, milloin GLO voi odottaa osinkoja Turkista.

Kaikesta “dissauksesta” huolimatta koen että Iskendarun on erinomainen. Se ei ole historiassaan tehnyt yhtenäkään operationaalisena vuotena tappioita (ei edes finanssikriisin keskellä). Normalisoidussa tilanteessa uskoisin Iskendarunin tuottavan US$10-12M nettotulosta GLOlle, josta lähes kaikki maksetaan ulos osinkoina. Se on kassavirtaa tuottava varallisuuserä, jolla on 40-50 vuoden käyttöikä ja joka ei tarvitse GLOn puolelta työtunteja, sillä Befesa erinomaisena operaattorina pyörittää operaatioita.

Jos GLO arvostettaisiin osien summalla uskon että Iskendarun ansaitsisi 7-11 P/E kertoimen. Tämä antaisin Iskendarunille US$70-132M arvon vs. GLOn US$78M markkina-arvo.

Mutta millä on nyt ja tässä eniten väliä on sillä että Iskendarun maksaa velkansa pois mahdollisimman nopeasti ja sillä ettei Turkin terästeollisuus heikkene lisää/ pystyy avaamaan ovensa pysyvästi COVID pakotteiden poistuessa.

Tämän jälkeen GLO voi käyttää Iskendarunia velkatakuutena ja maksimoimaan Dasan rakentamiseen vaaditun velkarahoituksen määrän.

Myöhemmin GLO voi myös myydä Iskendarunin, esimerkiksi Befesalle, ja potentiaalisesti maksaa kertaluontoisen osingon, joka vastaa GLOn nykyistä markkina-arvoa.

Valuaatio & Tulospotentiaali

Jokainen valuaatiomalli on ongelmallinen ja itsestäni nämä ongelmat moninkertaistuvat kun kohteena on kaivosyhtiö, jonka täytyy rahoittaa ja rakentaa kaivos. Tuntuu täysin absurdilta esimerkiksi käyttää vakioitua uraanin hintaa seuraavan 12 vuoden ajan, koska tiedämme uraanin hinnan olevan super syklinen.

Joten käytän mieluummin yksinkertaista osien summaa ja “mitä jos” malleja näyttääkseni GLOn tulospotentiaalin erilaisissa ympäristöissä, jotta voimme saada jonkinlaisen käsityksen siitä mikä on (toivottavasti) minimaalinen reiluarvo GLOlle.

Aloittaen osien summasta saamme kunnioitettavan 2x tuottopotentiaalin, jopa silloin kun uraanin hinta säilyisi $35/ lbs tasolla pysyvästi. Tämä on uraanisektorilla uniikkia ja erottaa GLOn kaikista verrokeistaan.

Voisimme olla villejä ja lisätä US$30-50M Dasan 2. Vaiheelle + sen toisille exploration targeteille ja saamme mukavan 20-35% tuottopotentiaaliin.

Uranium Price$35$40$45$50
Dasa Normalized FCF (M)$44,00$56,0$68,0$80,5
Multiple for Dasa8888
Dasa EV$352$448$544$644
Iskenderun EV$100$100$100$100
Debt−$150−$150−$150−$150
Corporate level−$25−$25−$25−$25
Value$277$373$469$569
Shares (today 160m)300300300300
Value per share$0,92$1,24$1,56$1,90
Value per share CAD$1,30$1,75$2,20$2,67
Implied upside100%170%239%311%

Toinen tapa katsoa GLOta on ottamalla “normalisoitu” vapaan kassavirran Dasasta ja Iskendarunista, lisäämällä hiukan kuluja emoyhtiön tasolla, huomioimalla jonkin verran veroja Kanadasta (vaikka Turkin ja Nigerin operaatiot maksavatkin jo veronsa kyseisiin maihin) ja rasittamalla GLOta maksimaalisella velalla, jonka se tulee luultavasti koskaan kantamaan. Lisään myös +10% OPEXia varmuuden varalta. Iskendarunin kohdalla käytän yllä esitettyä “lower Base case” laskelmaa.

Tätä mitä-jos skenaariota voisi kutsua “Huonoa verosuunnittelua” skenaarioksi:

Uranium Price$40,00$45,00$50,00$55,00$60,00
Dividends from DASA$58$71$84$97$110
Dividends from BST$10$10$10$10$10
Debt$150$150$150$150$150
Interest (8%)$12$12$12$12$12
SG&A$8$8$8$8$8
Taxes$5$6$7$9$10
Net Profit$43$55$67$79$90
Shares (M)300*Added 140m to current share count
EPS in CAD$0,204$0,259$0,314$0,369$0,425

Minkä tulisi olla selvää on se että jopa 2X laimennuksella, huonolla verosuunnittelulla ja ei-niin-loistavalla uraanin hinnalla GLOn tulospotentiaali on huikea sen markkina-arvoon nähden. Yksinkertaisesti sanoen GLOn arvo on merkittävästi sen hintaa korkeampi.

Jos uraanin hinta nousee $60-75/ lbs tasolle ja GLO kirjoittaa merkittävän määrän pitkäaikaissopimuksia lukiten hintoja vuosiksi eteenpäin, tulospotentiaali on lähes absurdin korkea.

Jos hinta ei rakentoi, vaan pitkäaikaissopimukset solmitaankin $40-50/lbs tasolla GLO toimii yhä loistavasti.

Voin sanoa, tutkittuani lähes jokaisen uraanijuniorin, että GLOn potentiaalinen ekonomisuus on vertaansa vailla.

Siksi Global Atomic on erityinen. Se tulee luultavasti toimimaan puhtaasti kassavirta sijoituksena, vaikka monien toivoma uraani ralli ei olisikaan toistoa 2006-2008 rallista.

Dasa on myös erinomainen Merger & Acquisition kohde sen pitkän kaivosiän ja suurten resurssien ansiosta.

Summa Summarum

Olen todella tyytyväinen OPEAn tuloksiin. Fokus Flank Zoneen on ehdottomasti oikea päätös. Se tekee Dasasta korkean voluumin, korkean marginaalin, korkean IRR.n ja alhaisen CAPEX.n projektin, jonka GLOn kaltainen junior yhtiö voi rakentaa ilman tuhoisaa laimennusta.

Jos uraanin hinta kohoaa $60/ lbs Dasan NVP on US$665M ja $70/ lbs uraanilla NVP nousee US$850 tasolle.

GLOn markkina-arvo suhteessa Dasan NVPhen on yksi alimmista sektorillaan. Dasalla on myös yksi alhaisin break even piste olemassa olevista projekteista (alemmat löytyy lähinnä luvittamattomista Kanadan projekteista).

Ja GLO on yhä, viime aikaisesta nousustaan huolimatta, yksi vähemmän tunnettuja uraaniyhtiöitä. Sillä kuitenkin on joukko nimekkäitä omistajia kuten Mike Alkinin Sachem Coven (7%), Segra Resource Partners, Crux Investorin Matthew Gordon, jne. Tiedän myös muutaman muun raaka-ainerahaston rakentavan positiota GLOsta.

Lisätään tähän se että Iskendarun on loistava liiketoiminta, joka tulee tuottamaan merkittävän lisän kassavirtoihin seuraavat 40-50 vuotta. Hyvässä markkinassa Iskendarunin myynti voi myös tarjota GLOlle >1x sen nykyisen markkina-arvon verran käteistä.

Seuraavat muutama vuosi tulevat olemaan (uraanin härkämarkkina poissulkien) kuitenkin haastavia. Tulemme näkemään osakeannin ja lisää laimenemista ja jos globaalitalous heikkenee voi Iskendarunin lainojen takaisin maksu aiheuttaa vielä lisää laimenemista osakkeenomistajille. Oletan 2020Q3 näyttävän erittäin karulta.

Mutta nämäkin tekijät huomioiden valuaatiossa näen GLOn tarjoavan merkittävästi enemmän arvoa kuin sen nykyinen markkina-arvo on.

Ps. Olen kirjoittanut yrityksen johdosta ja kuvannut sen liiketoimintoja (Turkki) merkittävästi yksityiskohtaisemmin aiemmassa kirjoituksessani. En koe että näissä asioissa on tapahtunut oleellista muutosta, joten suosittelen lukemaan aiemman analyysini tästä: Global Atomic – Ready for liftoff.

Disclaimer, omistan GLOn osakkeita. Sijoitushorisontti 4 vuotta. Suurin potti ostettu CAD0,3$ tasolla, mutta lisätty 0,45, 0,5, 0,6 tasoilla. Lisään jatkossakin.

Update 03/2021: Projekti on jatkuvasti kehittynyt parempaan suuntaan, samoin Turkkia koskevat negatiiviset skenaariot ovat kadonneet sinkin hinnan ja käyttöasteen nousemisen ansiosta. Osakkeen hinnan nousu merkittävästi aiempaa korkeammalle tasolle tarkoittaa myös että arvioni laimenemisesta olivat ylisuuret. Uskoisin että uskaltaisin heittää GLO:lle arvoksi C$3-C$3,5 ja spekulatiiviseksi hinta C$10. Hinta = osakkeen hinta * osakkeiden määrä.

Arvo on jotain millä koen saavani tarpeeksi kassavirtoja, jotta saan investoinnista hyvän/tyydyttävän tuoton. Spekulatiivinen hinta on jotain mihin uskon GLO:n pystyvän pääsemään syklin huipun lähellä. Mielestäni on loogista maksaa arvo – 20(25)% osakkeesta. Tämä tarjoaa margin-of-safetya. Arvon ylityksen jälkeen jonkin asteinen myyntiohjelma on pakollinen. Myyntiohjelman tulee osua arvon ja spekulatiivisen hinnan väliin.

Disclaimer2: Tämän tekstin tapahtumat pohjautuvat fiktiiviseen fantasiamaailmaan. Jos yhtiöiden tai henkilöiden nimillä on yhteneväisyyksiä oikean maailman kanssa ne ovat täysin sattumanvaraisia. Tarina on fiktiivinen, eikä siten millään lailla osto- tai myyntisuositus. Fantasiakirjallisuus ei ole oikea paikka sijoitussuositusten metsästämiseen.

Lähteet:

  1. https://www.globenewswire.com/news-release/2017/12/22/1270240/0/en/Silvermet-Inc-Announces-Merger-With-Global-Atomic-Fuels-Corporation-Completes-Share-Consolidation-Name-Change-and-Private-Placement.html, Silvermet and Global Atomic Fuels Merger 2017
  2. GLOBAL ATOMIC ANNOUNCES POSITIVE ECONOMICS FOR DASA, https://www.globalatomiccorp.com/wp-content/uploads/2020/04/GLO-April-15-2020-ENGLISH.pdf
  3. https://www.globalatomiccorp.com/news/global-atomic-submits-the-mining-permit-application-for-its-dasa-uranium-project/
  4. CruxInvestor interview: Global Atomic (TSE:GLO) – Two can make a wish come true, yeah https://www.youtube.com/watch?v=1dNgFbdnkm4&t=1190s
  5. Etango Uranium Project, Namibia Optimisation Study National Instrument 43-101 Technical Report https://www.bannermanresources.com.au/wp-content/uploads/2015/11/151224-Bannerman-43-101-Technical-Report-Optimisation-Study_final.pdf
  6. AN UPDATED INTEGRATED DEVELOPMENT PLAN FOR THE MADAOUELA PROJECT, NIGER 
  7. Arrow Deposit, Rook I Project Saskatchewan NI 43-101 Technical Report on Pre-feasibility Study https://www.nexgenenergy.ca/_resources/reports/Rook-I-NI-43-101-Technical-Report-19Dec2018.pdf
  8. NI 43-101 TECHNICAL REPORT DASA Uranium Project – Mineral Resource Update 31 July 2019
  9. Preliminary Economic Assessment – DASA Uranium Project, Central Niger 16 November 2018
  10. https://www.youtube.com/watch?v=urrFRnVtQtM&t=1905s, Discussion with Stephen Roman, SmithWeekly interview, 16 April 2019
  11. Global Atomic, MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, FOR THE YEAR ENDED DECEMBER 31, 2019
  12. Corporate presentation: March 2019 Global Atomic – Poised For Lift-Off

Global Atomic: Ready for liftoff

Although this analysis is dated 21.11.2019 it still has a lot of validity (especially when it comes to the management).

I was also happy to find out that it created a reaction within Global Atomic and the Vice President Merlin Marr-Johnson ended up writing an answer to my analysis ”The Right to Reply”. This quote made me smile:

On the 21st November 2019, Mikko Leivo posted an article analysing Global Atomic as investment case to the Crux Investor Opinion platform. After seven or eight densely argued pages, the article eventually concluded that Global Atomic, in Mikko’s opinion, was a good investment proposition. But not before he had given the executive suite a thorough roasting on the way through. The excoriating prose left us as a management team reeling and wondering how to respond, despite the article being an overall endorsement of Global Atomic.

You can read the full text here: https://cruxinvestor.com/opinions/global-atomic-right-of-reply/

But without further ado, Global Atomic: Ready for liftoff

TSX: GLO

Shares issued 144M

Shares fully diluted 160M

Share price on CAD$0.49 (16.11.2019)

Fully diluted Market Cap CAD$78.4M (USD$59.4M)

Global Atomic Corp (GLO) was formed in 2017 when Silvermet Inc. (owner of Turkey’s Zinc operations) and Global Atomic Fuels Corporation (Private Uranium company) merged. (1)

GLO has two divisions. Base metal division which owns 49% of a Zinc recycling plant in Turkey and Uranium division that explores and develops Uranium assets in Niger.

GLO in short
Global Atomic Q42019 Corporate Presentation

It is the only Uranium junior with positive cash flow and net income.

It has a large and high grade multi decade asset (DASA) in Niger. “Largest High-Grade Uranium Sandstone Deposit Globally.

It has a large insider ownership with the CEO Stephen Roman owning >8% of the company. He has also been actively purchasing more shares from the open markets:

Insider buying
Source (2)

Stephen Roman also has a track record in Uranium mining and he sold a Gold company (Gold Eagle) to Goldcorp in 2008 for $1.5B. (33)

These are the things you want to see in a company. Great assets, great management with large ownership, insider buying and  better yet, GLO looks cheap even just based on the Zinc operations.

So let’s take a deeper dive.

Zinc operations

GLO owns 49% share of Befesa Silvermet Turkey (BST) which owns a Zinc recycling plant (Iskenderun) in Turkey. 51% of BST is owned by a Spanish company, Befasa. Befasa was purposefully brought in as an operational JV partner. It’s a large Steel dust recycling operator and knows this business extremely well.

Steel mills produce Electric Arc Furnace Dust (EAFD) which contains a Zinc. Steel mills have to recycle this material. BST collects the EAFD, recovers zinc from it and produces a high-grade zinc concentrate which is sold to smelters.

Befasa Company Presentation November 2019
Befasa Company Presentation November 2019

BST had a capacity of 65kt (equals roughly to 30Mlbs Zinc pa.). In 2019 the plant has been under an upgrade and was re-opened in early November 2019 with a capacity of 110kt (c. 60Mlbs Zinc pa.). This was done in time and in budget.

OPEX for the pre-upgrade plant was about $0.45/lbs and after this upgrade, based on what S. Roman (11) and Merlin Marr-Johnson have said in their interviews, OPEX will fall to around $0.37-0.4/lbs range.

BST has been a profitable operation for almost 10 years now. It’s a great cash flowing business with an extremely low break-even. Not taking 2019 into account, BST is a lean and profitable operation with high margins and low overhead.

Iskendarun

In 2018 BST made a net profit of CAD21.4M. GLO’s share of these profits was 49% CAD$10.5M. GLO received c. CAD$7M in dividends. (3)

CAPEX for this upgrade was $26M. It was financed using debt ($2M from Turkish bank and $20M from Befasa (Libor +4%)) and part of the cash flow generated in 2018. “The Befesa funding is expected to be repaid out of operating cash flows or refinanced during 2020/21.” (4)

So GLO’s share of the Debt is $10.8M and interest payment will be around $0.65M in 2020.

If BST doesn’t refinanced (which I doubt) GLO has to pony up c. $6M in both 2020 and 2021 to be able to pay down it’s debt. BST, luckily, is a cash machine. Even in with a 90% utilization and $0.8/lbs Zinc price it can take care of the debt.

Iskendarun what if

In the short term there are some important risks. BST collects the EAFD from 7 (soon 8) local steel mills. Because the 8th mill isn’t in production yet, BST will not reach 100% capacity in 2020. There just aren’t enough EAFD. If any of these steel mills close, BST will not be able to have enough feed stock to operate in full capacity.

As a base metal Zinc has a history of falling of the cliff when a recession hits. This combined with closures (or production cutbacks) of any of the local Steel mills would mean lower revenue and lower capacity utilization and could affect GLO’s ability to pay down it’s debt.

Nevertheless I think that BST is a great asset. I think that a $1/lbs longterm price for Zinc is a conservative number. With that price BST can pay close to $10M pa in dividends to GLO. If they can refinance and pay the debt down in 5 years GLO can expect to receive a dividend of $7-10M from BST pa. from 2021 (when dividend for 2020 is paid) onwards. There will be no dividends in 2020.

Zinc price history

DASA and Niger

In short Niger has had a long history as an Uranium producer. It was a French colony and from the 70’s the French have been operating in Niger mining Uranium. Uranium is >70% of Niger’s export proceeds and an important source of foreign currencies. (5)

Niger has a fast permitting schedule of just 6 months. It also has a problem as Orano is closing its Cominak mine in Niger. And so both Uranium juniors GoviEx and GLO seem to be getting the message of “go to production ASAP” from Nigers government.

GLO owns 100% of DASA. DASA is a large and high grade deposit. It is also open to multiple directions and GLO’s management believes that with more drilling they can show it’s a >300Mlbs resource. (6)

DASA resources
Global Atomic Q42019 Corporate Presentation

Depending on the interview GLO’s management might talk about 210Mlbs or 150Mlbs asset. Needless to say either way DASA is large. By changing the cut-off grade companies can make it really hard for investors to compare different assets to each others.

So few examples of peers.

  • GoviEx’s Madaouela uses a cut-off grade of 400ppm and has c. 140Mlbs in MI&I. Average grade is around 1300ppm. (7)
  • Bannerman’s Etango project uses a cut-off grade of 55pp for its reserves of 130Mlbs and resources of 165Mlbs in M&I and 62.5Mlbs of Inferred. Average grade is around 190ppm. (8)

Besides DASA GLO owns:

  • Tin Negouran Deposit, 10 Mlbs U3O8
  • Dajy Deposit,  17 Mlbs U3O8
  • Isakanan Deposit,  34 Mlbs U3O8 that has “Significant ISR potential” and is next to DASA.

But because there’s no technical studies even hinting that these deposits could be economical, I will leave them without further study.

GLO has said that it will begin a Feasibility Study (FS) on DASA imminently. But like with me fixing my wife bike this will likely mean in a few months. GLO has few options going forward.

It can try to finalize the Memorandum of Understanding (MOU) it signed with Orano in 2017. According to the MOU GLO can deliver it’s ore directly to Orano’s mill. Orano will pay GLO a spot price times the amount of Uranium pounds in the rock delivered.

The good point in this set up is that based on GLOs low AISC it can start operations fast and with miniscule CAPEX ($35M). It can start creating cash flow and use this to example build its own mill.(9)

It can also build its own mill (probably in a 5Mlbs pa range) and start with an open pit and then go underground. With this strategy it will be mining it’s lowest grade materials at the start but it can use this cash flow to finance the underground mine.

This is close to what their 2018 PEA studied. Initial CAPEX is $320M and Post-tax NPV goes up around $130M for every $5/lbs rise in Uranium price after 50$/lbs. (9)

After the PEA GLO has grown its resources by a meaningful amount.

DASA PEA NPV

Lastly it can go underground, using semi-automatized mechanical underground mining. CAPEX would be a bit higher but it could start mining the best materials it has straight away and maximize the value of those first 3 tax free years. This would also probably end up meaning lower costs per pound in the long run.

But we have to wait to see what they will do. GLO has to make the decision before starting the FS process as FS will study the option GLO chooses.

In Crux interview  S. Roman said “in the next 10 years it’s going to be a very easily mined open pit, right from surface, low strip-ratio. No nasties in the Ore. I’d say our costs, we would be able to mine a pound, process it and put it in a drum for under $20/ lbs.” This is with their own stand alone plant. (10)

This might be a indication on what they are planning.

Timeline-wise Feasibility Study will take 6-9 months. After that permitting will take another 6 months.

GLO old 2019 presentation
2019Q4 Corporate Presentation

  1. Roman has mentioned in his interviews that they could be mining in early 2021.

But it’s more reasonable to say that even if everything works perfectly, they need another 2-4 months to secure financing, 2-4 months to hire the right people and 3-6 months to do some pre-stripping/ stripping exercise.

Then if they do decide to build their own mill, another 12-24 months to build it (this stage can coincide with pre-stripping). Hence if they go with the Orano MOU plan late 2021 is the earliest moment they would be mining and if they go with their own mill early 2023 seems reasonable.

GLO’s earnings potential

When the Feasibility is done and a company receives its permits, the Government of Niger gets a free 10% share of this newly formed mining entity (i.e. of DASA). It can also opt to purchase another 30% but this is in my opinion unlikely.

Niger has a corporate tax with a tax free period of 3 years after mine starts operations. There’s also a sliding scale royalty of 5.5%-12% that is dependant on the profit margin. (9)

So taken those factors into account let’s just look at the PEA option.

DASA AISC
AISC, Global Atomic Corp 2018 PEA

This is a simple what-if model I build:

DASA stand alone

Well that is just wonderful. It’s even better taken the tax free years and the fact that the Government of Niger start to get it’s 10% only after the project has fully paid itself into account.

We can create a “ballpark” consolidated P&L by using the above as a basis and adding in the BST numbers. I also added $220M in debt, $8M in SG&A and a 100M new shares to dilute the EPS numbers. I use $1/lbs for Zinc with 90% capacity utilization. Average Uranium production is the same as in the previous spreadsheet i.e. 5.25Mlbs. The PEA uses LOM production of around 5.5Mlbs.

Consolidated P&L for GLO

I know that looking at a hypothetical what-if-EPS model isn’t a “proper” way to do analysis but for me it is relevant. I want to know what the company could really make per share because I own shares.

NPV models are, to me, more of a mutually accepted stupidity. We know that commodity prices are highly cyclical and that company level profitability doesn’t equal project level profitability.

But these scenarios are just a thought exercise to get a ballpark understanding of the potential earnings in different price environments. GLO shows extremely robust numbers.

Dilution, no dilution?

Dilution is the rule for pre-cash flow juniors. GLO is unique because it has cash flows. In his SmithWeekly interview (11) Stephen Roman said:

37:26 “I don’t think we need to ever actually come back to the market to develop the DASA project.

38:08 “We don’t really foresee having to issue more shares”.

Can it be?

Based on GLO’s 2019Q3 they had CAD$5.2M in cash.

Their burn rate is around CAD$1.2-1.5M per Q. They need to finance a Feasibility Study in 2020H1 (CAD$3-5M).

They also, in their newest Presentation, brought up Isakanan deposit that has 34 Mlbs of U3O8 and “Significant ISR potential”. I couldn’t find an older presentation with even a mention about Isakanan.

Adrar Emoles 3&4

Isakanan is located in Adrar Emoles 4 exploration permit. To be able to hold exploration permits companies need to show that they aren’t merely sitting on them but actively exploring.

Adrar Emoles 4 spend
Global Atomic Corp Annual Report 2018

Based on GLO’s 2018 Annual Report GLO needs to spend USD$4M before 28th of January 2021 to keep Adrar Emoles 4. And this figure is just for Adrar Emoles 4, not Tin Negoran 1-4.

Seems logical to think that if a company starts to bring up an asset in their promotional materials they have the goal to hold it.

So in 2019Q4 we have a cash burn of CAD$1.5M. In 2020 c.CAD$10M and 2021Q1 another CAD$1.5M. That’s CAD$13M in total before spending the required CAD$5.3M to Adrar Emoles 4 (In fairness they will not lose 100% of the exploration permit area if they don’t spend the required sum but this is a meaningful discrepancy nevertheless).

Thing is there’s no dividends from BST for 2019. There can be some dividends for 2020 if they refinance the debt that is due for 2020 and 2021. But dividends for 2020 are paid in 2021H1.

So there will be a raise and a meaningful one in 2019Q4 or 2020Q1. They need, in my opinion, CAD$6-8M. This will mean around 12-16M new shares.

I wouldn’t bet my farm that there wouldn’t be another raise in 2021.

The statements S. Roman has given are to me somewhat irresponsible and worrisome.

Another detail I want to point out from their 2019Q4 Corporate Presentation is this one:

GLO in PE

This P/E of 2.5 on forward basis is simply false.

Management team and Stephen Roman

Stephen Roman is the son of the founder of Denison Mines. He’s to my knowledge the only Uranium junior CEO with a background of working in a mine as a miner. He has worked in multiple positions and made a long career in mining. He has build mines and sold them.

His compensation is a bit much taken the early stage of the company. George Flach is also extremely highly paid.

GLO compensation 2016-2018

What is worth pointing out is that during these years S. Roman was a part time CEO (and President and Chairman). He was also the CEO (and President and Chairman) of Harte Gold and was paid handsomely.

Here are the compensations S. Roman earned from Harte during the same period. And if you look at the names you will notice another familiar one. Rein Lehari works as the (part time) CFO for both GLO and Harte.

Harte Gold 2018 compensations Management information circular 2018

In fact GLO’s George Flach also works in Harte Gold as a Director. So does the VP and secretary of GLO, Timothy Campbell. He’s, you guessed it, the VP and secretary of Harte.

Until a few months ago GLO’s board members Richard Faucher and Fergus Kerr were also Board members in Harte Gold.

The reason why Faucher and Kerr “resigned” is because an activist investor ANR Investments B.V. came in and started a “ Plan To Bolster Management”. This plan also included S. Roman resigning the CEO post and he will soon resign from the post of the Chairman. (11)

I will also note that Messrs. Roman, Flach, Lehari and Campbell are also currently directors in Romex Mining.

These things in and by themselves aren’t necessarily red flags but they are a sign of a bad corporate governance. It’s also sign of bad governance that S. Roman seems to always be the CEO and Chairman at the same time.

Compensation Committee should always be an independent entity. Yet Messrs. Roman, Faucher and Rance are all part of the Committee. Derek Rance is not a director in Harte Gold but he was a director in Gold Eagle back in 2008 and hence close to S. Roman.

2 compensation commitee
Global Atomic Corp Management Circular 2018

Good Corporate Governance is about checks and balances. It’s hard to see them in companies where S. Roman is involved.

This could be one of the reasons why it wasn’t a first time S. Roman “resigned” after an activist investor came in.

In 2010 Stephen Roman was the CEO, President and the Chairman of Belo Sun (then called Verena Minerals) when “Stan Bharti, through his private equity firm, Forbes & Manhattan, Inc., has agreed to subscribe for the majority of the private placement financing”. He also requisitioned a shareholder meeting where “Mr. Bharti will be appointed Chairman of the Board replacing Mr. Roman, Mr. Eaton will become President & CEO, replacing Mr. Roman”.

Also “Mr. Helio Diniz, based in Belo Horizonte, Brazil, will become VP, Exploration, replacing Mr. George Flach.” George Flach should ring a bell because he’s is currently Director in GLO, Harte and Romex. (13)

In 2009 S. Roman (Chairman) and Douglas Willock (President and CEO) founded Polar Star Mining Corp. The company had internal disagreements. On Jan 26th Willock requests for a special shareholder meeting to remove the current directors including S. Roman.

On 29th Polar Star formed a special committee which includes Messrs. P. Dellelce, Derek Rance (board member of GLO and director of Gold Eagle) and Douglas Scharf (also director in Verena Minerals/ Belo Sun).

On 30th Polar Star terminates D. Willock from the posts of the President and CEO. (14)

On Mar 9th 2009 D. Willock launches an Information Circular where he calls

“I am accordingly providing to you a proxy circular and a form of proxy that I have prepared in connection with the April 17, 2009 shareholders’ meeting. At that meeting, I will nominate a new slate of highly qualified individuals for election to Polar Star’s board of directors. (15)

D.Willock send his proxy form (16) and Polar Star offered up their Proxy that was for S. Roman and the incumbent board (17).

D.Willock won and S. Roman and D. Rance lost their positions. (18)

I bring these up because I think it’s interesting to see this kind of actions happening around S. Roman. I think it’s also a bit concerning to see these same names connected with S. Roman, time and again and losing their positions with S. Roman.

And a Proxy fight has happened in Global Atomic too. Some owners of Silvermet felt that the merger was not beneficial and that there were conflicts of interest due to the fact that S. Roman was the CEO, President and the Chairman for both of the merged companies. Other directors like Mr. Campbell and Mr. Lehari were also directors in both of these companies.

The proxy fight ended up losing but some of the things I was able to dug out were also mentioned in the “Greyling Information Circular”. (19)

There’s three more specific cases I want to mention in S. Romans history.

A mine builder: Harte Gold

I already mentioned that there’s a “Plan To Bolster Management” ongoing in Harte Gold. Besides the bad Corporate Governance and the officers paying themselves multiple full salaries, Harte is also a sad example of a case where almost everything went wrong.

2019 is the first year of operations.

On November 1st Harte Gold Provides Third Quarter Update and Guidance for 2019 and it was bad. “full year 2019 guidance has been adjusted to 24,000 to 26,000 ounces at an AISC of US$2,000 to US$2,200 per ounce. Previous guidance was 39,200 ounces at an AISC of US$1,300 to US$1,350 per ounce.” (20) Production estimate cut by c. 40% and costs up by almost 60%.

Besides this Harte Gold did some “clever” financial engineering by announcing Feasibility Study after the mine was build. This means the FS doesn’t include initial CAPEX and the IRR and NPV numbers look better than they should. (21)

To make things worse debts starting to come due Harte Gold is between a rock and a hard places.

Harte Gold debt

If things can be worse they usually are. And although Gold prices are up Harte has “successfully” capped a lot of that upside by using a hedging strategy that in the current environment is detrimental for the company.

Harte Derivates

I’m not impressed. I’m, to say the least, concerned on the implications this might have for the shareholders of GLO.

Exall Energy and the Board that resigned

Exall Energy was an Oil E&P. S. Roman served as the Executive Chairman and a Director. Exall’s oil production was miniscule and falling.

Exacll production annual 2015
Exall Energy, Annual Report 2014

This didn’t prevent the CEO Roger N. Dueck from saying in their 2014 Annual report that “Exall is positioned with a strong asset with light oil and good cash flow in distressing times.”.

Nor did the fact that Exall Energy had a negative equity of CAD$25M, liabilities of c. CAD$65M and it was losing money. (22)

Exall had maturities and interest payments coming due and it was tapped out. It was trying to arrange financing which, taken the situation it was in, was challenging.

On 9th of March Exall released a news release which said

“In addition, Exall notes that the next semi-annual interest payment under Exall’s outstanding $23 million convertible debenture is due on March 31, 2015, in the amount of $888,808.22. Absent closing of the Bond Transaction, and other financing arrangements, Exall will not have proceeds available to make this required interest payment.(23)

On 19th of March 2015 Exall released a Press Release of their 2014Q4 results and mentioned that:

on March 9 Viking Investments Group, Inc. (”Viking”) (OTC: VKIN) had advised Exall that given the current timing, it was considering dispensing with a bridge financing arrangement as a means to retire Exall’s existing facility with its current senior Canadian lender (the ”Facility”) in full (24)

On 25th of March 2015 Exall went into receivership “the Court of Queen’s Bench of Alberta appointed MNP Ltd. (the Receiver) as receiver and manager over the assets, undertakings and properties of the Issuer in an order dated March 25, 2015 (the Receivership Order)” and put the company into a trading halt. (25)

On 26th of March 2015 Viking “Opts Not to Proceed With Opportunity Involving Exall Energy Corporation”. The company was unable to pay its debts. (26)

What makes this story interesting is not the fact that the company failed. Oil prices fell and Exall was not a unique in failing. But when the company went into receivership they didn’t inform the shareholders. “A publicly traded company has the responsibility to issue a news release when there’s a material change in its fortunes, such as going into receivership.“ (27)

To make things worse is that shortly before the announcement of going into receivership came the board stepped down.

Harte Gold where S. Roman was the CEO and Chairman made sure to mention in their 2018 Information Circular that: “Stephen G. Roman was a former director and the former Executive Chairman of Exall Energy Corporation, having resigned prior to it entering into receivership on March 25, 2015.” (28)

While company was struggling between 2011 and 2014, Exall Energy’s directors and members of the executive committee received over $4.6 million dollars in compensation.

Let’s finnish S. Romans career history with the biggest win S. Roman has delivered, the sale of Gold Eagle to Goldcorp. It is boldly said in every interview and in every Bio of S. Roman it’s the main attraction. The PDAC award in 2016 is also related to Gold Eagle because it was given for the Bruce Channel discovery that made Gold Eagle the success it became.

GLO website bio
Global Atomic Corp Corporate website Bio (15.11.2019)

The Big Score: Gold Eagle 2002-2008

“The first big success I had was a discovery of a gold project in Northwestern Ontario called Gold Eagle. I sold Gold Eagle in late 2008 to Goldcorp for $1.5B” – Stephen Roman. (11)

Gold Eagle had been a producing Gold mine that had operated from 1934 to 1941. It’s located in the famous Ontario’s Red Lake district. After the mine closed the property had multiple owners, last in line Exall Resources (led by S. Roman).

Besides limited exploration nothing happened until “In November 2002 a 50/50 joint venture was entered into between Exall Resources Limited and Southern Star Resources Inc.”.

Some success was achieved in 2003 and 2004 but “in 2005 drilling east of the old Gold Eagle Mine intersected significant gold mineralization beneath the Bruce Channel”. (29)

In 2016 S. Roman (Exall Resources) received a PDAC Bill Dennis Award for Bruce Channel discovery with Robert Cudney (SSR) and John Whitton (Chief Geologist/ Project Manager). (30)

After 2005 drilling season financing more drilling became easy as the share prices soared.

pre merger Gold Eagle prices

In December of 2006, Exall Resources Limited and Southern Star Resources Inc. merged to create a new Gold Eagle Mines Ltd. (29)

This new company was led (President and the CEO) by Simon Lawrence. (31)

S. Roman and Robert Cudney both continued as the Co-Chairmen of the company. (32)

Gold Eagle was a success. There’s no two ways about it. But how much of this success is truly attributable to S. Roman?

It is almost impossible to piece the real picture out from public filings but the facts are that it was a joint-venture and there were multiple key persons. The discovery hole was made when S. Roman was the CEO of Exall but after 2006 the new company was led by Simon Lawrence and they drilled a lot, proving the size of the project.

When in 2008 Goldcorp made the buyout offer of $1.5B S. Roman was a Co-Chairman of the company with Robert Cudney. (33)

Gold Eagle was also a pure exploration play. I’m not trying to take anything away from the success but it truly was, until 2005, just a few explorers drilling away and hoping to hit big. And they did. In 2008 Gold Eagle had no technical feasibility studies, no mine, no permits.

The company was also lucky with their timing. Gold was trading at around $450/oz in 2005. In 2009 Gold had reached $900/oz range and was even courting the $1000/oz level. It was an excellent environment to make a discovery.

I can say that the way Gold Eagle story is told leaves purposefully an impression that S. Roman spearheaded the company from discovery to the sale and he was the most important individual. Based on my reading this doesn’t seem to reflect reality.

Summary of Global Atomic

Let’s start with the assets. I truly believe that GLO is uniquely positioned. It has a cash flow positive business BST. It has a large and high grade asset in Niger, in a jurisdiction where, although they don’t have permits today, I don’t feel it is a meaningful risk.

BST gives them a lot of options when it comes to financing DASA. They can sell their 49% share of BST to Befasa or use it to secure loans more easily than other juniors.

DASA has multiple option and each of them work pretty well on paper, even after adding some contingency. It is one of the few companies that can work even without an overshoot in Uranium prices.

In a case of M&A I think that DASA would attract a price multiple times higher than the current market capitalization of the whole company.

But the Management is a concern. I think that multiple members of Board don’t add any value. I think they sit in the Board because they support Mr. Roman. I’d love to see them being replaced by independent Board members.

I don’t think that S. Roman should be the CEO and Chairman at the same time. It is bad Corporate Governance. Neither do I think he should sit in the Compensation Committee.

There are things in his history that make me highly uncomfortable.

But to give a balanced opinion I will say that S. Roman always has skin in the game. He’s almost always a large owner and purchases shares from the open markets.

There are CEO’s who don’t own anything and pay themselves outsized salaries while the companies are standing still and living on raises. This is not the case with S. Roman. The red flags he raises are different in nature.

I think that he wants to make a lot of money with GLO and his main way to make that happen is by getting the share price higher.

He has also been a successful explorer with multiple meaningful discoveries under his belt including DASA. After everything I’ve said I fear that, he still might be one of the most capable mining CEO’s in the Uranium junior field. I hope that this sinks in.

There’s also a bright spot in management, namely Merlin Marr-Johnson. I’d love to see S. Roman taking the backseat and let Merlin drive for a change.

So the main question here is if GLO is cheap enough for me to bite? I think it is. It’s not without risks, not even near but I truly think that the assets GLO has are so much more valuable than its current market capitalization that it is a great way to position oneself for the Uranium bull market.

Sources:

  1. https://www.globenewswire.com/news-release/2017/12/22/1270240/0/en/Silvermet-Inc-Announces-Merger-With-Global-Atomic-Fuels-Corporation-Completes-Share-Consolidation-Name-Change-and-Private-Placement.html, Silvermet and Global Atomic Fuels Merger 2017
  2. https://stockhouse.com/companies/insiders?symbol=t.glo, Insiders 15.11.2019
  3. Global Atomic Corp Annual Report 2018
  4. Global Atomic Corp 2019Q3 MD&A
  5. https://en.wikipedia.org/wiki/Economy_of_Niger#Mining_2, Wikipedia Economy of Niger
  6. https://www.youtube.com/watch?v=34HE70J7EIo, Global Atomic reports significant new mineral resource estimate for DASA project
  7. GoviEx Corporate Presentation 2019
  8. Bannerman Corporate Presentation 2018 & Etango 43-101 Technical Report
  9. NI 43-101 Technical Report, Preliminary Economic Assessment – November 16, 2018
  10. https://www.youtube.com/watch?v=nCdpKOBaLEE&t=368s, CruxInvestor interview: Global Atomic – Largest High-Grade Uranium Sandstone Deposit Globally
  11. https://www.youtube.com/watch?v=urrFRnVtQtM&t=1905s, Discussion with Stephen Roman, SmithWeekly interview, 16 April 2019
  12. https://www.hartegold.com//wp-content/uploads/2019/09/2019-15-28-August-2019-Corporate-Update.pdf, Harte Gold Accelerates Plan To Bolster Management and Provides Financing Update
  13. https://agoracom.com/ir/Verena/forums/discussion/topics/403597-new-board-and-management-appointments-and-significant-private-placement/messages/1333956, Verena Minerals Announces New Board and Management Appointments and Significant Private Placement
  14. https://www.pressreader.com/canada/national-post-latest-edition/20090217/282136402310381, Frosty times at Polar Star
  15. https://www.sedar.com/GetFile.do?lang=EN&docClass=29&issuerNo=00025710&issuerType=03&projectNo=01384994&docId=2368225, Polar Star Information Circular, 9 Mar 2009
  16. (https://www.sedar.com/GetFile.do?lang=EN&docClass=13&issuerNo=00025710&issuerType=03&projectNo=01729895&docId=2864854, Polar Star D. Willock Proxy
  17. https://www.sedar.com/GetFile.do?lang=EN&docClass=13&issuerNo=00025710&issuerType=03&projectNo=01390800&docId=2376984, Polar Star S. Roman Proxy
  18. https://www.sedar.com/GetFile.do?lang=EN&docClass=8&issuerNo=00025710&issuerType=03&projectNo=01406263&docId=2398252, PolarStar Newsletter 20th April 2009
  19. https://ml.globenewswire.com/Resource/Download/9049a84b-6e6b-4660-a6db-8db891c94333, Greyling Proxy
  20. https://www.hartegold.com/uncategorized/harte-gold-provides-third-quarter-update-and-guidance-for-2019, Harte Gold Provides Third Quarter Update and Guidance for 2019
  21. https://www.globenewswire.com/news-release/2019/04/08/1798902/0/en/Harte-Gold-Announces-Positive-Feasibility-Study-For-The-Sugar-Zone-Mine.html, Harte Gold Announces Positive Feasibility Study For The Sugar Zone Mine
  22. Exall Energy, Annual Report 2014
  23. https://www.sedar.com/GetFile.do?lang=EN&docClass=8&issuerNo=00024975&issuerType=03&projectNo=02317541&docId=3690409, Exall 9th of March News Release
  24. https://www.sedar.com/GetFile.do?lang=EN&docClass=8&issuerNo=00024975&issuerType=03&projectNo=02321277&docId=3695925, 19th of March 2015 Exall released a Press Release of their 2014Q4 results
  25. https://www.albertasecurities.com/-/media/ASC-Documents-part-1/Notices-Decisions-Orders-Rulings/Issuers/2018/11/20150330-Exall-Energy-Corporation.ashx, 25th of March Exall goes into receivership
  26. https://www.globenewswire.com/news-release/2015/03/26/1237117/0/en/Viking-Investments-Group-Inc-Opts-Not-to-Proceed-With-Opportunity-Involving-Exall-Energy-Corporation.html, 26th of March 2015 Viking “Opts Not to Proceed With Opportunity Involving Exall Energy Corporation”
  27. https://www.cbc.ca/news/business/exall-energy-goes-into-receivership-doesn-t-tell-shareholders-1.3016889, Exall Goes into receivership, doesn’t tell shareholders
  28. https://www.hartegold.com//wp-content/uploads/2017/06/Harte-Gold-Notice-and-Information-Circular.pdf, Harte Gold 2018 Information Circular
  29. 2007 Annual Report Gold Eagle Mines
  30. https://republicofmining.com/2016/03/12/2016-pdac-bill-dennis-award-winners-bruce-channel-discovery-team-robert-cudney-stephen-roman-and-john-whitton/, 2016 PDAC Bill Dennis Award Winners
  31. https://www.sedar.com/GetFile.do?lang=EN&docClass=8&issuerNo=00008102&issuerType=03&projectNo=01034450&docId=1863352, Southern Star Resources Inc News Release 21 Dec 2006
  32. https://www.sedar.com/GetFile.do?lang=EN&docClass=1&issuerNo=00024756&issuerType=03&projectNo=01230151&docId=2148820, Gold Eagle 2007 ANNUAL INFORMATION FORM
  33. https://www.northernontariobusiness.com/industry-news/mining/gold-eagle-strikes-it-rich-with-goldcorp-acquisition-365112, Gold Eagle strikes it rich with Goldcorp acquisition

Disclaimer:

This analysis is for informational purposes only and is not to be considered personal, legal or investment advice or a recommendation to buy or sell securities or any other product. Any advice contained in this analysis is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this analysis. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Jaadajaada jaa.