In the immortal words of Bing Crosby, for Kazera shareholders it’s beginning to look a lot like Xmas!
This morning investors (of which we are the largest woke up to learn that Kazera will net at least US$13 million from the sale of its tantalum and titanium project in Namibia to Hebei Xinjian Construction (Xinjian). We say “at least” as the $13m accrues interest at 8% p.a. and there is also the 2.5% royalty. Based on the stated payment flows and current USD:GBP FX rate this equates to around 1.2p per share.
We believe that this is probably some US$10 million more than the company requires to meet its immediate needs (small loan repayment & further investment in the heavy minerals sands (HMS) project aswell as corporate overhead) and so brings the prospects of a decent amount of capital being returned to shareholders via some route like a special dividend(s) or share buybacks.
Kazera is selling its 100% interest in African Tantalum (Proprietary) Limited (Aftan) and associated loans to Xinjian for this headline base cash consideration of US$13 million. Importantly, Kazera will retain the right to receive a debenture (royalty) payment equivalent to 2.5% of gross sales of produced lithium and tantalum for the life of the mine. This could add up to some really big bucks as the new owner seems to be looking to achieve serious levels of production from both tantalum and lithium.
So, when will Kazera get its mitts on the money? Well, there is purchase consideration for the sale of the shares in Aftan of US$3.64 million and the repayment of the loan to Kazera of US$9.36 million. Approx US$0.642 million has already been paid, with US$0.5 million to be received before the end of December 2022 and a further US$2.5 million to be paid by the end of January 2023.
The balance will be payable in equal monthly instalments between April to December 2023 (which looks like it could be roughly US$1 million a month). Outstanding amounts will attract interest at a rate of 8% per annum (which on the above timetable could net Kazera an additional US$400,000 – $500,000 in total we estimate).
Here, we should mention that this latest transaction replaces that which was announced on 20th July 2022, when Kazera reported that Xinjain was going to invest US$7.5 million for rights to 50% of the Lithium production. The heauty of this new deal is that instead of accruing profits over several year the full fair value is being received in cash on a much accelerated basis without execution risk.
The board sees this transaction as representing the first successful realisation of a strategic investment made by the company and the return of material value to shareholders. The strategic exit will allow Kazera to invest in its other projects, principally the major HMS opportunity in South Africa, without the need to tap shareholders – a very, very rare beast on AIM as we know!
Dennis Edmonds, Kazera’s CEO has pointed out that “We are delighted in the confidence shown by Xinjian in our Aftan investment and which has allowed them to make an offer to purchase the entire operations from Kazera. This will represent the first realization of an investment and so being consistent with our stated strategy as an investing company to move investments up the value curve and then opportunistically exit as well as allowing management to focus upon our existing projects and new investments. The debenture stream also maintains an interest in the growing cash flow profile at nil cost to the Company. We see major opportunities in the present environment and look forward to returning value to our supportive shareholders in the near term. …”.
To us, it looks as though these funds will be coming into the company at a highly opportune time. In South Africa, Kazera’s 60%-owned Whale Head Minerals (WHM) has been able to announce that it has comfortably exceeded its target of producing 1,000 tons of bulk HMS by the end of 2022. In fact, the operation has already built up a stockpile of close on 5,000 tons. So far so good, but the big prize will come when full production of 6,000t per month is achieved and the production is separated out into the various component minerals. This would considerably increase profitability to WHM without increasing the overhead. At 6000t/per month the net profit to KZG has been forecast to be in excess of $2m p.a. And that is just the beginning.
Already, discussions are reported to be well advanced with three different parties who have all expressed their interest in buying the bulk product. Not only that, but this comes with a view to them entering into a contract in the future to buy the operations’ supply of refined minerals that attracts the premium price we mentioned above.
At this stage it is probably worth mentioning that Walviskop represents a really impressive assemblage of heavy minerals, having a Total Heavy Mineral content of 62.1% – one of the highest grades globally. Of this, apparently 98% are valuable (saleable) heavy minerals. It is worth comparing this with Namakwa Sands’ operation which consists of an open-pit mine and concentration plants at Brand-se-Baai, 385km north of Cape Town. Namakwa Sands’ Total Heavy Mineral content stands at just 9.5%. of which 58% are valuable (saleable) heavy minerals. Namakwa Sands is owned by the US$2.1 billion market capped Tronox Holdings, a vertically integrated producer of titanium dioxide and inorganic chemicals around the world.
It does look like a win-win situation to us, as in addition, the quality of diamonds being unearthed within the HMS attract a price of US$750 per carat. This compares to US$350/ct for those found in beach sands.
Kazera’s CEO Dennis Edmonds is clearly a deal maker and since taking over as CEO has improved the company’s position in leaps and bounds. Coyly, in this latest announcement, Kazera just said that management’s attention will now be freed up to focus on other strategic investment opportunities. Given the big funds that are now coming into the company, we have high hopes that investors will be rewarded by seeing impressive growth.
With the sale of TVM having a see through value of 1.2p per share to current shareholders, at the closing price yesterday the HMS & diamonds are in for a negative valuation. As per our recent not HERE the Walviskop HMS tenement has been valued at US$223.75m of which 60% is attributable to Kazera. Given the potential partners vying to be involved here and looking at peer Mineral Commodities valuation of approx £30m, this division we had previously valued in our SOTP at $12.46m which was a very conservative figure. This in fact excludes the much larger licence area in the mix that would likely see out even the youngest shareholder in terms of mining life. Taking this base figure however and attributing nil value to the diamonds side we can see that a price north of 2p per share looks eminently achievable in the New Year as the HMS operations continue to build traction. Kazera continues to be a rare beast in AIM minnow mining land – run by a CEO with a tempered salary, adept at doing deals and now being cash heavy and with growing and meaningful profits coming on stream at the HMS operation with multiple partners looking to be involved.
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