This is what I got out of the VML AGM, last week.
This seeks to be a report of what the Board presented to the AGM, rather than my thoughts about the company. My natural tendency is to find the positive in just about every situation, I have tried to subdue this tendency in preparing these notes.
All directors attended, except apology from Francis Harper.
Company Secretary, Ian Hobson, apology, retiring after the AGM and to be replaced by Matthew Foy, who attended.
All formal motions were passed by show of hands at the meeting. Refer release of figures to ASX.
Chairman closed formal part of meeting and introduced CEO. Mark Strizek, (MS), apologised for venue’s equipment failure, which prevented powerpoint presentation, since released to ASX.
MS reviewed events which had been reported to ASX during the year, and expressed the view that the company was much better placed than at last AGM:
- Lower level of debt, remaining debt is due at end of 2018.
- Had good support with fund raising from Macquarie Bank, Argonaut, and Blackwood.
- Price of tungsten has risen, and there is interest in the Watershed project.
- Prospect of finding gold project at Niger.
- Burkina Faso projects are still prospective, but not as previously thought.
Indications are that the Board believes Watershed can be developed, now, and that the Board has decided to review all aspects of the project, including the Definitive Feasibility Study, (DFS), to bring the project up to bankable stage so company can secure finance, and make a final investment decision within the year. They are reviewing the rate of extraction of tungsten from the ore, and are redesigning the pit optimisation study in light of higher prices for tungsten.
The ongoing low exchange rate for the Australian dollar is helping the project.
The Board maintains the view that Watershed is a world class project, its grades are good, the product is relatively free of impurities, it has all approvals needed to commence construction and mining, and VML has engaged Provisio Corporate to advise on securing financing for the project. The final financing details will depend on the current review of the project.
Since the DFS was completed in 2014, with JOGMEC support, the AUD exchange rate has fallen, which favours the project, the minerals boom has passed us by, which means construction costs are likely more competitive now, and operating costs have changed, again, mostly in the projects favour, making it more attractive.
Enquiries in the Watershed region indicate that a suitable workforce can be found locally; producing lower wage costs for the project than what was expected 2 – 3 years ago.
James Cook University is helping with a research project on the ore body.
The Board believes there is potential to upgrade the resource from 70,000 tonne to 100,000 tonne, due to the factors listed above.
There is confidence that Watershed is moving into the lower quartile cost of production for tungsten, $ per MTU, when compared to other tungsten mines around the world. If this is proven to be the case, Watershed will be able to compete on cost alone, against other producers.
But, all this depends on price of tungsten continuing at its current level. Thinking within the Board is that the long term price is likely to be around $300 per MTU. It has recently been above this, but has since retreated to about $275. It may be 12 months before the project moves to the stage where a final investment decision can be made. Financiers for the project and likely purchasers of product will be identified by then, so the price behaviour during the next year is going to be quite important as it will influence the decision making of potential financiers; if the tungsten price sinks, getting the project off the ground will become harder, if it trades around its current level, which will be profitable for VML, project participants will be more confident and comfortable about supporting the final investment decision; price above current levels can only be positive for the project and for VML.
Feedback is that the Chinese Government is still committed to reducing pollution, and the Board believes this is a long term Government position. It believes that old polluting mines which have recently been shut down will not be reopened. This Government direction applies to all mines in China, not just tungsten mines. Mine owners must either comply with these higher environmental standards, or close down their operations.
Wage costs for Chinese mines are also rising, and if this continues, China’s reputation as a low cost producer is going to come under some pressure in the near future. If China wishes to increase its output of tungsten, it will do it with significantly upgraded mines, or new mines operating on higher standards, particularly environmental standards, which will raise the production costs of Chinese tungsten. Watershed will be able to compete in these circumstances.
Capital costs for Watershed are likely to come down as a result of the review, but at the moment, a likely figure is $75 – 80 million.
Feedback gives the Board confidence it will be able to secure finance for 70 – 80 % of this amount. Equity for the balance of the project, in some form, will be demanded by the financiers. This equity might come from VML selling a part share of the Watershed project, as part of securing financial close for the project, or a separate capital raising during the next twelve months. Consolidation of the number of shares on issue might be a part of this.
There is precedence for selling a share of the Watershed project. Awarding a 30 % share of Watershed to a Japanese company was part of the JOGMEC deal, which expired at the end of 2015, without a Japanese company taking up the offer. The Board notes that the JOGMEC agreement expired right at the bottom of the fall in the price of tungsten which has stayed low ever since; until about 8 months ago.
All these actions are being driven by the tungsten price which has risen off its lows in just the last 6 – 12 months.
Shareholders demanded that both a capital raising and consolidation, if either is required, must be linked to the Company announcing positive news, in order to avoid unwanted dilution of existing shareholders, or a fall in investor confidence in VML.
No discussion like this has taken place at previous AGMs. This is an indicator of the company’s progress, in my view.
VML is planning further exploration on its other projects during the year.
The Elephant Creek project is showing positive signs and there are still prospects for copper in the Peninsula project, near the Watershed project in North Queensland.
Minimal reworking of the German leases will be carried out. Annual holding costs for these properties are reasonable.
The Board still considers the Burkina Faso leases to be valuable, in spite of not finding significant gold in the last drilling campaign. They did get unexpected zinc results, which needs analysis. To find and prove up a (gold or zinc) project is likely to require large amounts of cash, so targeted drilling will be done to get a better picture of the makeup of the ore body at Kollo before they decide on the specifications for the next drilling programme at Kollo.
Priority is being given to the three leases in Niger recently joint ventured with Summa, a major Turkish development and construction company. The presence of artisanal miners on the Bella Tondi lease is taken to be a very good sign. Other viable gold mines have been found beneath artisanal workings at other locations. A contract has been signed to drill 30 holes in the Bella Tondi area, starting in 3 – 4 weeks.
So, in summary, for the coming 12 months, VML is working, positively, to bring Watershed to a Final Investment Decision, so construction can commence, but this is likely 12 months away, and the Board is hopeful it will find significant gold in the Summa joint venture areas in the next 6 months, allowing it to make a decision to take up a bigger role in the project; or walk away.
Hope this recounting of what was presented at the AGM helps. I am just a simple shareholder and have no qualifications with which to judge or express an opinion on anything the Board or staff of VML might say.