AXO - Aurox Resources

[jman2007]

AXO into an 'eagerly anticipated' trading halt...

Hmmpf...Management are certianly good at quashing rumours and making denials, however, they have stated clearly this morning that the Company is "entering into a material contract in relation to the Balla Balla project".

Presumably, with the wording of that statement it will have some kind of 'important', 'significant' or otherwise effect on the company's prospects. I have been aware of the Chinese whisper rumour doing the rounds, but AXO are playing their cards very close to their chests atm. I would not expect the announcement to be re finance (would take months surely? ).

Potentially this could relate to a part-sale of the project, or the purchase or arrival of a major piece of machinery/equipment. Purely speculation at this stage though...

jman

 

[Golf 16]

Glad you posted jman

AXO into an 'eagerly anticipated' trading halt...

Hmmpf...Management are certianly good at quashing rumours and making denials, however, they have stated clearly this morning that the Company is "entering into a material contract in relation to the Balla Balla project".

Presumably, with the wording of that statement it will have some kind of 'important', 'significant' or otherwise effect on the company's prospects. I have been aware of the Chinese whisper rumour doing the rounds, but AXO are playing their cards very close to their chests atm. I would not expect the announcement to be re finance (would take months surely? ).

Potentially this could relate to a part-sale of the project, or the purchase or arrival of a major piece of machinery/equipment. Purely speculation at this stage though...

jman

I too was wondering what this was all about. I thought that perhaps Muschu's earlier posting might turn out to be right ie "Business, Finance and Market News.....
Peter Klinger and Kate Emery
June 3, 2008

.....Whispers continue to suggest Aurox Resources could unveil a deal with Chinese state-owned Chengde Iron and Steel Group as early as this week.

A deal looks to be on the cards - I wonder of what sort? Given the significant capital expense to get Balla Balla up and running it has always been on the cards that some part of the project could be sold or some sort of JV struck. Is that too fancifull at this stage?
I remain 'on edge'.

Regards to all holders, Golf.

 

[jman2007]

. I would not expect the announcement to be re finance (would take months surely? ). Potentially this could relate to a part-sale of the project, or the purchase or arrival of a major piece of machinery/equipment. Purely speculation at this stage though...

So the trading halt was to announce a 15-year deal, brokered with the Port Headland body for a designated magnetite stockpiling area, dewatering facility and ship loading facility for AXO.

I am wondering if a trading halt was absolutely necessary for this news, positive as it was, perhaps the boat may be slightly leaky? : On the other hand, given that we can expect an increasing amount of competition for infrastructure in this region, I'm sure the significance of the deal hasn't been lost on AXO management.

Another box ticked nonetheless.

jman

 

[jman2007]

Tut tut...

It's been an interesting few days for AXO, well-timed announcement on the 01/07 re a 46% increase in the Balla Ballla Resource, which now stands at 473Mt @ 43.2% Fe. The implosion in the US and our own weak market have taken a fair bit of wind out of their sails though. On target for 1Bt by the end of the year?...well yes, acording to AXO they are.

On a somewhat more embarassing note for the company, they have failed to release a change in substansial holding notice to the market re a certain Mr Zhang Xiangqing, a Director of the Company, who acquired another 1.5M shares on market seemingly between 20 March - 13th June (depending on how you interpret the release..). This kind of thing does p$$s me off a bit tbh , the rules are laid out in clearly, and if they're not followed properly we don't have a free and fair market... I'm not overly familiar with the background of some of these chaps tbh, gonna have to do some more digging I think...

My rant for the day...

jman

 

[jman2007]

Been looking at the economics of Balla Balla in a bit more detail,

Fully diluted, AXO have a MC of approx AUD$ 190m. As of May 08 thay had $73m in cash reserves.

The latest AXO presentation uses assumptions of 135 USc per dry metric tonne unit ((dmtu) which looks like it factors in future increase in Hammersley fines prices), operating costs of $31/tonne concentrate, and a unit EBITDA of $41.39/tonne concentrate (assuming 9% moisture and an exchange rate of 90USc/AUD).

Annual EBITDA for 6Mtpa (2010-2014) is $248M, and for 10Mtpa (2014>) $414M. Current Capex estimates are in the order of $850M.

Obviously the capex would be the main hurdle to overcome atm, until this is finalised I can't see a dramatic re-evaluation occurring.

Probably fair to assume a 50:50 split between debt and equity. On that basis MC would dilute to approx. $560-570M. On last current trading price of around 88c, p/e using the AXO EBITDA data works out to be 2.3 from 2010-2014 and 1.35 for 2014 onwards. Whether it's advisable to use EBITDA for a p/e determination I don't know (advice anyone ), as obviously it leaves out the cash required to fund working equipment, replace old equipment etc. I would also expect around 70% of the free cash flow in the first four years to go towards the payback for the plant.

Still looks pretty cheap on that basis though.

The other upside of Balla Balla that needs to be factored in is the processing of the tailings for titanium and phosphate. I guess it would be more correct to refer to their bulk product as "titanomagnetite", not hamematite...but not quite magnetite either! (but what about the vanadium? ). Anyway, the 300,000tpa from Y1-Y5, and 500,000tpa from Y5 onwards of TiO2 would be worth approx US$50 per unit of 46% conc. Pretty minimal processing costs too, some regrind and slurry pipe transport to PH.

I wonder what the slurry pipe transport option to PH is worth to them over the long-term, in terms of savings in transport costs? One would have to think it would be significant.

Comments welcome.

jman

 

[Sean K]

This does seem to very undervalued on the facts at the moment. Back down to .80 with the market tide.

Capex probably the biggest turn off for people looking at it in the current financial crisis, which is going to be the biggest problem for all the developers over the coming months. There'll be a lot of has beens I think.

But with the sales locked in, surely they will get the required financial backing.

All the numbers presented above seem fair to me. And geesh, if they get the 1b target by Christmas then you can see that it's running a little under the radar.

The Company is aiming to define a 650 million tonne Resource by the end of August and expects to exceed 1 billion tonnes before Christmas,”

One to watch for when (if) the market settles.

 

[jman2007]

I was reasonably encouraged by the last Quaterly,

Probably a good move by AXO to undertake a capex review of Balla Balla, as the last estimate was nine months ago, and there have obviously been a heck of a lot of changes in the credit and financial sectors since then.

Appears as though someone may have been short-selling this all the way down, which is frustrating to say the least. I have to say the fall from 80c to 60c has occurred on very low volume, and I am not keen to re-enter until I see some substansial support appearing.

Obviously a busy quater coming up for the company, with all kinds of engineeering scoping studies underway, continual resource def drilling etc to feed to the market.

A frustrating time atm however.

jman

 

[jman2007]

Another technical update from management,

Re the debt financing option, the Company received epressions of interest from 12 banks re debt financing for Balla Balla. This has been shortlisted to a syndicate of 5 banks, with bank due diligence due to kick off shortly.

Essentially most of the engineering and met work is progressing more or less to the timetable, the slurry pipe option for transporting concentrate to PH has been shown to be the most economic option, and groundwtater studies indicate that they should have in ecess of 30% over the required volumes to sustain long-term production, which is great. Hopefully we'll see Environmental approval granted by the Environment Minister Q1 2009...

AXO are also looking into the option for co-extracting a titanium concentrate from illmenite potentially reaching a throughput of 550,000 tpa. The capex for this would be fairly negligible as this process could essneially operate off the "back-end" of the existing magnetite processing plant.

The P205 Resource numbers in the hanging wall waste rock sound pretty crazy to me:

89,693,000 Tonnes @ 3.74% P2O5 (of which 72,627,000 is Measured)

A 30-32% concentrate would be saleable, and if they are able to produce 1Mtpa of P2O5 conc this would obviously further strengthen the already strong economics. I haven't ran any numbers for the Phosphate potential at Balla Balla, but it would obviosuly look pretty bloody good. Cash on hand less than what I epected, at $36M, but I may consider an entry around 36c based on what we know already.

jman

 

[jman2007]

This is getting interesting

Up 70% since Friday, and two Directors have been buying, Zhang has picked up almost 2M shares for an absolute song, and Sillcock has chipped in too. As well, RockCheck steelgroup have increased their holding to 10.3% which is also very interesting. Hopefully we'll get some news soon re the banking syndicate visit to Balla Balla. We could do with a good news story. Unsure yet what RockCheck's motives are, although they undoubtedly have helped the sp recover.

 

[jman2007]

Aurox, WPG eye Chinese Financing

http://www.metalbulletin.com/Article/2035352/Iron/Aurox-WPG-eye-Chinese-financing.html

Capex estimate increases to 1 Billion AUD, obviously if 35% is to be funded with equity AXO realistically can't do this at 20c. No mention from AXO what the outcome of the visit by the banking syndicate was, but tbh I feel the Chinese will be more the likely candidates to come to the party. I am expecting Rockcheck to continue increase its holdings and try to create a blocking stake.

jman

 

[jman2007]

"China Hebei Steel seeks to Finance Aurox Project"

http://www.yourmetalnews.com/china+hebei+steel+seeks+to+finance+aurox+project_13753.html

http://www.chinamining.org/Investment/2008-10-24/1224815974d18469.html

http://steelguru.com/news/index/2008/10/26/Njg1NDU%3D/Hebei_Steel_to_join_Aurox_iron_ore_project.html

Looks like quite a few sites carrying this story today, I do stress that the overlying theme is that negotiations are at an "early stage". Sounds like most of the big players were at the steel conference in China.

Could be a rollercoaster ride for AXO holders this week, I wonder if this will signal another buying rush from Rockcheck Steel?

jman

 

[jman2007]

Well at least one firm has initiated coverage of AXO,

http://www.aurox.com.au/assets/Uploads/research/ABN-AMRO-30th-October-2008-research-report.pdf

ABN rates AXO as a buy, with a target price of $1, which is at a 50% discount to their valuation to allow for the cost of debt financing and equity raisings to finance Balla Balla. Otherwise, the research doesn't add too much more too the story that we don't already know. Obviously it rates the capex requirement as the biggest hurdle to overcome.

Rockcheck Steel have got to absolutely loving this, they've got their hands on another 5% of the company in the last 3 weeks for next to nothing. Now I understand why Chengde Iron and Steel are happy to pay the Hamersley Fines prices for the magnetite concentrate - they're getting the vanadium for free according to Schaus!

jman

 

[jman2007]

Definitely in the doghouse still,

And still pretty frustrating being a shareholder I have to say...

But there have been a few signs of progress lately. Most of the announcements in 2009 have centered around AXO's reduction in expenditure, notably a suspension of engineering work being carried out by Siemen's and a variation in the agreement at the Utah Port facility - basically if they can't finalise financing by 31st March 2010 then they forfeit their loading facility there.

The early note conversion deal struck with the majority of the major holders was probably a good outcome. The 50-odd million notes had a face value of 95c and were due to mature in 2010... if AXO had had to pay the noteholders out - then goodbye Balla Balla! The 25c price represents about a $12.5 M expense for the company for an early conversion of all the notes... but better than being bankrupted by June next year. Not sure who the other 30% party are, but they must be playing a bit of hardball one would imagine.

Still waiting for final Ministerial approval to advance Balla Balla, which is more or less the final hurdle to overcome before financing can be arranged. Obviously finance is the going to the big ugly hill to conquer... but I wonder if Hebei are waiting for the Enviro approval before taking some kind of stake in the project? Who knows, it's all speculation right now.

jman

 

[Sainter]

I would assume the last 30% includes a fair number of small shareholders, so too difficult to deal with all of them. They seem to have done a good job to stitch up the top 70%-that will save them from what otherwise would have been pretty ugly come note redemption time next year.
I do not hold.

 

[jman2007]

I would assume the last 30% includes a fair number of small shareholders, so too difficult to deal with all of them. They seem to have done a good job to stitch up the top 70%-that will save them from what otherwise would have been pretty ugly come note redemption time next year.
I do not hold.

Yes good point,

That's probably who the other 30% of holders are. I imagine some of the more stubborn ones may not take up the offer though. Still, the outcome could have been much worse.

 

[gone2thepack]

So with AXO hitting up to 19.5 today,is this a trend that is likely to continue?
I feel that its bound to rise further as the shares in my oppinion are really undervalued,but the question is a matter of when??.
Open for discussion anyone?

Gone2thepack

 

[jman2007]

So with AXO hitting up to 19.5 today,is this a trend that is likely to continue?
I feel that its bound to rise further as the shares in my oppinion are really undervalued,but the question is a matter of when??.
Open for discussion anyone?

Gone2thepack

Well it's up almost 200% since its low @7.7c, expect the ASX to issue a speeding ticket some time next week. Has been looking quite strong throughout the days trading during the week too, which is obviously a good sign - no depressed sellers keen to exit just yet it seems. Another stock that was ridculously oversold - and I missed the boat again!

Still no word on the pending Environmental approval, could possibly be some inisder action going on though one would think

jman

 

[jman2007]

Still no word on the pending Environmental approval, could possibly be some inisder action going on though one would think

The break is on again

Up another 30% during the past two days. This is really quite remarkable, and has left me absolutely gob-smacked : I thought 30c may have provided a temporary ceiling, but it has cruised through that with ease.

The EPA approval was an important stepping stone, and was the last barrier before any formal steps could be taken to tackle the issue of finance. No co-incidence that Charles and Co were back in China buttering up the Chinese again.

The convertible note early conversion may in fact be a life saver for AXO, despite the 20% or so of note holders hanging out for the 95c. The 10,000,000 notes remaining represent approx $8.5M which is a considerable chunk of AXO's remaning cash.

There is however now a better than even chance that AXO could raise more capital when the time comes to help pay for the remaining conversions - so those secured shareholders who wish for AXO to be put into administration may be left disppointed.

 

[Sainter]

As I understand it, AXOG is the only debt of any note, and so if AXO falls over, AXOG is first in line to recover costs. So AXOG holders are pretty safe given only $9.1M would need to be picked from any carcass if indeed it did fall over. If they get the big $ they need to start the operation, the outstanding $9.1M of AXOG would merely be an incidental cost in the scheme of things.
I hold AXOG (bought in once the buyback was announced-not as many as I wanted) and intend to hold to redemption. I may not gain as much as new AXO shareholders have got recently in terms of gains, but I felt it was a more certain bet to get a 200+% return in little over a year. I'll accept the risk/return equation on that one!
Cheers!

 

[jman2007]

As I understand it, AXOG is the only debt of any note, and so if AXO falls over, AXOG is first in line to recover costs. So AXOG holders are pretty safe given only $9.1M would need to be picked from any carcass if indeed it did fall over. If they get the big $ they need to start the operation, the outstanding $9.1M of AXOG would merely be an incidental cost in the scheme of things.

Latest brr boadcast with Charles if you're interested Sainter

http://www.brr.com.au/event/57430

Charles didn't give too much away, but I did get the impression he remains very confident in the viablity of the project. The net debt relief from the early conversion of the notes is $33M, and as you say the only debt of any note will be the remaining notes and interest obligations - less than $10M.