NEWS
12 Jul 2021 - Performance Report: Premium Asia Fund
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| Fund Overview | The Fund is managed by Value Partners using a disciplined value-oriented approach supported by intensive, on-the-ground bottom-up fundamental research resulting in a portfolio of individual holdings, which are, in the view of Value Partners, undervalued and of high quality, on either an absolute or relative basis, and which have the potential for capital appreciation. The Fund will primarily have exposure to the equity securities of entities listed on securities exchanges across the Asia (ex-Japan) region, however, the Fund may also gain exposure to entities listed on securities outside the Asia (ex-Japan) region which have significant assets, investments, production activities, trading or other business interests in the Asia (ex-Japan) region as well as unlisted instruments with equity-like characteristics, such as participatory notes and convertible bonds. The Fund may also invest in cash and money market instruments, depositary receipts, listed unit trusts, shares in mutual fund corporations and other collective investment schemes (including real estate investment trusts), derivatives including both exchange-traded and OTC, convertible securities, participatory notes, bonds, and foreign exchange contracts. |
| Manager Comments | Over the past 12 months, the fund's volatility has been 7.56% compared with the index's volatility of 5.8%. Since inception the fund's volatility has been 12.73% vs the index's volatility of 10.07%. The fund has a down-capture ratio of 3.86% since inception, and ranging between 19.08% (3 years) and -65.46% (12 months). A negative down-capture ratio indicates that, on average, the fund has risen during the market's negative months. |
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12 Jul 2021 - Manager Insights | Aitken Investment Management
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Chris Gosselin, CEO of Australian Fund Monitors, speaks with Charlie Aitken, CEO & Portfolio Manager at Aitken Investment Management. The AIM Global High Conviction Fund is a long-only fund that invests in a high conviction portfolio of global stocks. The Fund has risen +25.82% over the past 12 months, and +17.78% p.a. since inception in July 2019. Its capacity to outperform in falling and volatile markets is demonstrated by its down-capture ratio (since inception) of 74% and Sortino ratio (since inception) of 3.35.
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12 Jul 2021 - Performance Report: Surrey Australian Equities Fund
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| Fund Overview | The Investment Manager follows a defined investment process which is underpinned by detailed bottom up fundamental analysis, overlayed with sectoral and macroeconomic research. This is combined with an extensive company visitation program where we endeavour to meet with company management and with other stakeholders such as suppliers, customers and industry bodies to improve our information set. Surrey Asset Management defines its investment process as Qualitative, Quantitative and Value Latencies (QQV). In essence, the Investment Manager thoroughly researches an investment's qualitative and quantitative characteristics in an attempt to find value latencies not yet reflected in the share price and then clearly defines a roadmap to realisation of those latencies. Developing this roadmap is a key step in the investment process. By articulating a clear pathway as to how and when an investment can realise what the Investment Manager sees as latent value, defines the investment proposition and lessens the impact of cognitive dissonance. This is undertaken with a philosophical underpinning of fact-based investing, transparency, authenticity and accountability. |
| Manager Comments | The fund's Sharpe ratio has ranged from a high of 1.95 over the most recent 12 months, to a low of 0.61 over the past 3 years. Since inception the fund's Sharpe ratio has been 0.61. The fund's Sortino ratio (which excludes volatility in positive months) has ranged from a maximum of 8.04 over the most recent 12 months, to a low of 0.76 over the past 3 years. Since inception the fund's Sortino ratio has been 0.77. Since inception in the months when the market was positive the fund provided positive returns 81% of the time. It has an up-capture ratio of 118.39% since inception and 111.2% over the past 12 months. Across all other time periods, it has ranged between 143.09% (2 years) and 123.74% (3 years). |
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9 Jul 2021 - Hedge Clippings | 09 July 2021
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9 Jul 2021 - Performance Report: Collins St Value Fund
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| Fund Overview | The managers of the fund intend to maintain a concentrated portfolio of investments in ASX listed companies that they have investigated and consider to be undervalued. They will assess the attractiveness of potential investments using a number of common industry based measures, a proprietary in-house model and by speaking with management, industry experts and competitors. Once the managers form a view that an investment offers sufficient upside potential relative to the downside risk, the fund will seek to make an investment. If no appropriate investment can be identified the managers are prepared to hold cash and wait for the right opportunities to present themselves. |
| Manager Comments | The fund's Sharpe ratio has ranged from a high of 4.45 over the most recent 12 months, to a low of 0.95 over the past 4 years. Since inception the fund's Sharpe ratio has been 1.01. The fund's Sortino ratio (which excludes volatility in positive months) has ranged from a maximum of 1.83 over the past 2 years, to a low of 0 over the most recent 12 months due to the fund not having had any negative returns over that period. Since inception the fund's Sortino ratio has been 1.42. Since inception in the months when the market was positive the fund provided positive returns 84% of the time. It has an up-capture ratio ranging between 184.93% (2 years) and 87.46% (since inception), and over the most recent 12 months has provided an up-capture ratio of 185.28%. |
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9 Jul 2021 - Webinar Recording: Private Equity
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Chris Gosselin, CEO of Australian Fund Monitors, speaks with Michael Tobin, Managing Director of Vantage Asset Management about the Private Equity market and why it has consistently outperformed listed markets over the past 15 years.
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8 Jul 2021 - Performance Report: AIM Global High Conviction Fund
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| Fund Overview | AIM are 'business-first' rather than 'security-first' investors, and see themselves as part owners of the businesses they invest in. AIM look for the following characteristics in the businesses they want to own: - Strong competitive advantages that enable consistently high returns on capital throughout an economic cycle, combined with the ability to reinvest surplus capital at high marginal returns. - A proven ability to generate and grow cash flows, rather than accounting based earnings. - A strong balance sheet and sensible capital structure to reduce the risk of failure when the economic cycle ends or an unexpected crisis occurs. - Honest and shareholder-aligned management teams that understand the principles behind value creation and have a proven track record of capital allocation. They look to buy businesses that meet these criteria at attractive valuations, and then intend to hold them for long periods of time. AIM intend to own between 15 and 25 businesses at any given point. They do not seek to generate returns by constantly having to trade in and out of businesses. Instead, they believe the Fund's long-term return will approximate the underlying economics of the businesses they own. They are bottom-up, fundamental investors. They are cognizant of macro-economic conditions and geo-political risks, however, they do not construct the Fund to take advantage of such events. AIM intend for the portfolio to be between 90% and 100% invested in equities. AIM do not engage in shorting, nor do they use leverage to enhance returns. The Fund's investable universe is global, and AIM look for businesses that have a market capitalisation of at least $7.5bn to guarantee sufficient liquidity to investors. |
| Manager Comments | Over the past 12 months, the fund's volatility has been 9.71% compared with the index's volatility of 7.95%. Since inception the fund's volatility has been 10.61% vs the index's volatility of 11.02%, and over all other time periods the fund's volatility has been lower than the Global Equity index. The fund's Sharpe ratio has ranged from a high of 2.42 over the most recent 12 months, to a low of 1.56 over the past 2 years. Since inception the fund's Sharpe ratio has been 1.56. The fund's Sortino ratio (which excludes volatility in positive months) ranged from a maximum of 7.49 over the most recent 12 months, to a low of 3.35 over the past 2 years. Since inception the fund's Sortino ratio has been 3.35. |
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8 Jul 2021 - Performance Report: Bennelong Long Short Equity Fund
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| Fund Overview | In a typical environment the Fund will hold around 70 stocks comprising 35 pairs. Each pair contains one long and one short position each of which will have been thoroughly researched and are selected from the same market sector. Whilst in an ideal environment each stock's position will make a positive return, it is the relative performance of the pair that is important. As a result the Fund can make positive returns when each stock moves in the same direction provided the long position outperforms the short one in relative terms. However, if neither side of the trade is profitable, strict controls are required to ensure losses are limited. The Fund uses no derivatives and has no currency exposure. The Fund has no hard stop loss limits, instead relying on the small average position size per stock (1.5%) and per pair (3%) to limit exposure. Where practical pairs are always held within the same sector to limit cross sector risk, and positions can be held for months or years. The Bennelong Market Neutral Fund, with same strategy and liquidity is available for retail investors as a Listed Investment Company (LIC) on the ASX. |
| Manager Comments | The Fund's capacity to significantly outperform in falling and volatile markets is highlighted by the following statistics (since inception): Sortino ratio of 1.41 vs the Index's 0.47, maximum drawdown of -23.77% vs the Index's -47.19%, and down-capture ratio of -162%. During the month, market conditions were a tailwind for the portfolio. In addition, favourable fundamental news for a number of our companies was material. Most pairs were positive. At the sector level Materials stood out. MIN/BHP was the top pair with ongoing earnings upgrades for both companies. Since the trough in earnings forecasts last year BHP forecasts have been revised up 100%, but MIN have been revised up 200%. |
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7 Jul 2021 - Seas the day
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Seas the day Tony Sutton, K2 Asset Management June 2021 In 2019, which seems like 100 years ago, the cruise industry was booming with bookings and pricing both at record levels. 2020 was set up to be a phenomenal year. What could go wrong? With the onset of Covid the world changed drastically, and the travel sector in particular continues to experience significant difficulties. The cruise lines found themselves right in the eye of the storm with the Ruby Princess in Sydney and the Diamond Princess in Japan making headlines for all the wrong reasons. For approximately 15 months now and counting, ships have been sitting idle and the operators burning through cash. In order to stay afloat literally and figuratively they have been forced to raise significant amounts of capital - both equity and debt. Moving forward to today, global travel is slowly resuming and more specifically we are seeing an enormous amount of pent up demand for leisure travel. Consumers want to go on holidays and they love to cruise. Using Norwegian Cruise Lines as an example, their booked position for 1H 2022 is meaningfully ahead of 2019 which was a record year and at higher prices. Recently launched new ship Norwegian Prima, with voyages scheduled to begin in August 2022, set a company record for the single best booking day and best initial booking week. It warrants emphasising that this is all being achieved with almost no spending on marketing, further demonstrating the strong demand for cruise travel. The revenue economics for the major cruise lines are quite straightforward. Prior to covid all ships sail at close to 110% occupancy. The only variable is price as the opportunity cost of an empty cabin is significant. The business model is to get the passengers on board then upsell them with things like shore excursions, dining upgrades, internet, casino, drink packages, etc. Revenue is split roughly 2/3rd ticket price, 1/3rd on-board spending. For this reason, Norwegian is strongly advocating for cruises to be fully vaccinated so that they can firstly fill the ship and secondly the onboard experience will be as close to 'normal' as possible. In the very short term, the US Centre for Disease controls (CDC), which has been making life hard for the cruise industry by imposing excessively onerous conditions to the extent where Norwegian CEO Frank Del Rio accused them of being and I quote "un-American". His source of frustration is the different rules for every other transportation, entertainment and hospitality venue which are all open to varying degrees. However, in the last few weeks, the CDC has started to ease, providing cruise operators with greater confidence that they will be able to meet their return to sailing timelines. As any army general will tell you, it is easy to start a war but difficult to end it. This is very similar to the cruise ships and Covid where we have been through lock down and now the path out remains a little foggy. While we don't expect smooth sailing from day 1, for investors that are prepared to take a more medium-term view, we know that cruising will resume in full force and we know that demand is there in abundance. Keep Calm and Cruise On. Funds operated by this manager: K2 Annapurna Microcap Fund, K2 Asian Absolute Return Fund, K2 Australian Absolute Return Fund, K2 Global High Alpha Fund, K2 Select International Absolute Return Fund, KSM - K2 Australian Small Cap Fund (Hedge Fund) |
6 Jul 2021 - Life After 40 - Time to Go Overseas?
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Life After 40 - Time to Go Overseas? Anthony Kavanagh, Chester Asset Management 22 June 2021 Twelve months ago we wrote our second note on Mineral Resources (ASX: MIN) titled "Can Mineral Resources be a $40 stock?". Within seven months our question was answered with an emphatic yes. Like all good sequels that enjoyed debatable success, we thought why not go a trilogy? We realise we may sound a bit like a broken record suggesting parts of the company remain underappreciated but hopefully some of the areas highlighted in this note make it less pointless than the Karate Kid III movie. As a recap, from our last note we felt the market was: underappreciating the quality and growth potential of Mining Services; behind the curve on iron ore projects; and mispricing lithium optionality. Ultimately some of this boiled down to being under-covered, which appears to no longer be the case with increased broker coverage. This probably brings with it reduced ability for unique insight but we still see a couple of interesting parts of the business that present meaningful upside to market (sell-side) valuations and the share price, including:
Our updated valuation is presented below with more detail following. Source: Chester Asset Management
Lithium 12 months ago, we summarised the lithium market in FY20 as follows: "lower prices, operational issues, curtailments/mothballing, value destruction and bankruptcies". With hydroxide prices now ~USD15,000/t CFR into North Asia and 6% spodumene (SC6) ~USD700/t, share prices up multiples in 12 months, lithium contracts being agreed and consolidation taking place, the tables have certainly turned. Obviously, prices are now up but we ask ourselves has spodumene become more attractive? Since the days of Standard Oil markets have been debating the appropriate economic split between upstream and downstream operations. It is not an easy question, and like many in markets can be answered by supply and demand fundamentals. When lithium markets were oversupplied spodumene was bid down to marginal cost of production (lower in some cases as entities like Alita/Tawana and Altura went into administration) however 2021 has seen the market tightening and prices reflecting that. Furthermore, with upstream producers expressing an increased desire to vertically integrate the spodumene left over for the hydroxide refineries is limited, so the margin available to upstream producers potentially increases. Companies like Pilbara Minerals (PLS) are even going a step further: by creating an exchange to sell spodumene into and investigating a midstream product with Calix (CLX). Source: Pilbara Minerals Corporate Presentation, May 2021 Hence we see a natural progression for downstream players, facing potential spodumene shortfalls to also seek increased integration via JV tie-ups/ acquisitions. Given the political climate it seems likely FIRB would stymie attempts to acquire Australian operators by certain players and see greater integration between African upstream (hardrock) entities and China downstream players to avoid these players ending up like the HBO show Ballers (1). As we commenced writing this note, supportive of our thesis, it was announced Gangfeng would pay Firefinch (FFX) USD130m for a 50% stake in the Goulamina mine in Mali. This preamble is a long-winded way of saying anyone with uncommitted spodumene should receive a greater share of value for it. Before the market got tight MIN was already planning for this and recent announcements have reinforced a desire to convert all spodumene to hydroxide within their own supply chains. Mt Marion Mt Marion continues to perform strongly with a steady run rate of ~450ktpa, recoveries (>85%) and costs (~USD350/t CFR) best in class. Although we don't have updated reserves/ resources on the project MIN point to the project having a 20+ year mine life. We now value MIN 50% stake in Mt Marion at ~AUD560m assuming an ~20 year mine life, providing MIN steady state EBITDA of AUD90m p.a. (ex Mining Services) (2). Wodgina In relation to Wodgina planning is currently underway to restart the mine after it was placed on care and maintenance in November 2019 following construction. Given greater scale, lower strip ratio, higher grade and more favourable cost structure, potential exists for Wodgina to have a far superior cost structure to Mt Marion, albeit we await clarity on what this may look like. MIN had previously suggested a cost of USD296/dmt at 65% recovery for 750ktpa of SC6 but given the learnings from Mt Marion (and other operators) we see potential for production at a higher rate and lower product spec (5.5-5.8%) at improved recovery and cost. We now value MIN 40% stake in Wodgina at ~AUD1,060m assuming a ~30 year mine life, providing MIN steady state EBITDA of AUD150m p.a. (ex Mining Services) (2). Lithium Hydroxide - International Opportunity We reiterate our view that Kemerton will likely be fed by Greenbushes and MIN's owns 40% even if it's not fed by Wodgina. Furthermore, Kemerton being fed by Greenbushes does not alter MIN's ultimate ambition of converting all of their spodumene (both Wodgina and Mt Marion) to hydroxide. Given quoted costs in China for downstream(3) vs more than double that in WA it is likely we see JVs established in China as the likely location of hydroxide refineries. We have provided an updated summary of our lithium hydroxide valuations below. Source: Chester Asset Management (with reference to various announcements around lithium hydroxide plants)
Iron Ore At the time of our last note iron ore (62% dmt CFR fines) was trading at ~USD105/t and Fortescue (FMG) at AUD14.00/share. We admitted 12 months ago we weren't predicting >USD150/t and still expect at some stage prices will roll over but MIN has certainly benefited from that strength. Due to our complete inability to predict the iron ore price we continue to use our FMG model to interpret a long term (LT) iron ore price implied by the market with FMG at AUD22.00/share. We continue to acknowledge this as an imprecise science but for us remains a useful exercise. Notably we now acknowledge that previously we had only modelled reserves but appreciate that higher iron ore prices would see resources convert to reserves. Hence we've added an additional scenario showing the implied iron ore price from 100% resource conversion. The outcome of this is we continue to use consensus USD66/t (real) LT as our assumed base case 62% Fe price (after 3 years using ~consensus) but flex this to USD80/t LT as an upside scenario. MIN notably at their most recent AGM announced a strategy around the four hubs of: Utah Point, Yilgarn, Ashburton and Southwest Creek. We provide an update on each of these below. Utah Point Currently MIN are exporting Iron Valley tonnes from Utah Point but in addition will export Wonmunna, Lamb's Creek and Wedge Iron Ore through the port. MIN is currently developing a 10 year, 14Mtpa mine plan for the hub (within 12 months). Iron Valley and Wonmunna will form the base of production. Wonmunna was notably acquired (Q1 FY2021), developed and commenced production (March 2021) in the space of 6 months, showing all of the benefits of Next Gen Crushing plants referred to in this document. The all in cost of acquisition and development for 5Mtpa of capacity was quoted at AUD126m with output potential of 10Mtpa for "little additional capital cost". Yilgarn The Yilgarn hub consists of infrastructure at Carina and Koolyanobbing. MIN is currently in the process of finalising a 10 year mine plan that includes Koolyanobbing, Parker Range and Mt Richardson. Planned capacity for the hub is 13Mtpa. Valuations of Existing Operations Source: Chester Asset Management, Mineral Resources Announcements Ashburton The latest with regards to the Ashburton iron ore project is that it is anticipated to be construction ready in August 2021 with a 2 year development (so first production 2H CY23). The project hub has been earmarked as 25-30Mtpa. The key sources of supply for Ashburton are Bungaroo South and Kumina. Notably, recently a subsidiary of MIN has also bought a 15% stake in Aquila resources that has a 50% stake in the Australian Premium Iron JV. I.e., MIN now has effectively 7.5% of the API project. Baowu owns 42.5% while US company AMCI and South Korea's POSCO each own 25% of API. The key project of the JV is the 40Mtpa West Pilbara Iron Ore project. It was reported MIN paid AUD10m for the stake which also gives them exposure to Eagle Downs Coking coal project in QLD and Manganese assets in South Africa. We watch with interest how this asset may play into the strategies around Ashburton and Southwest Creek. Southwest Creek (SWC) In our previous note we provided a model for a 20Mtpa Marillana operation. Since then, MIN announced the desire for the business to be a 40-50 Mtpa operations consolidating more than just Marillana but also Ophthalmia and other stranded deposits. MIN has also announced that farm in agreements under the JV with Brockman had been satisfied and the JV had been amended(4) to include the Ophthalmia Project. Hence at least half of the SWC is proposed to come from Marillana/Ophthalmia. MIN are still competing for berth rights (3 and 4) at Southwest Creek which are reserved for emerging / junior iron ore miners. Although there is no guarantees around access there are certainly other options if they aren't successful in securing rights. Hence we are surprised to see little value reflected in analyst valuations for the project. Valuations of Growth Projects Our valuations for Ashburton and SWC are summarised below. Notably capex is a key area of uncertainty however we have provided analogues below to drive our assumed capex figures. Source: Chester Asset Management with input from BHP, RIO and MIN announcements
Source: Chester Asset Management, with input from various ASX announcements Mining Services Per our analysis the market seems to be pretty consistent (now) in how they value MIN's Mining Services division at ~6-7x EBITDA. We continue to believe a higher multiple is warranted given: the sticky nature of the business, the IP in their crushers and the greater portion that is effectively locked in for life of Mine Operations. However, we use 6x EBITDA as our base and 8x EBITDA as our upside case within our valuation. Certainly, one of the key areas we had noted in our last note, being the market not recognising the earnings growth of the segment, has played out as MIN's has delivered material growth and even softly upgraded the 'guidance' on the division to a doubling of production for calendar year 2019 within 3 years. Source: Mineral Resources FY2020 Results Presentation As we previously noted historic analysis of MIN's half year results suffer from variability from: intersegment transactions and undefined construction earnings meaning EBITDA margins and revenue aren't reliable without stripping this out. Hence, we feel it most appropriate to consider the ex construction EBITDA attached to production for a reasonable indicator of past earnings and what that could mean for future earnings. Source: Chester Asset Management, with input sourced from MIN half year results Hence assuming reasonably consistent EBITDA margin we calculate the guidance implies ~AUD585m EBITDA at end CY22 (from annualised AUD460m 1H FY21). We believe this to be exclusive of both the key iron ore growth projects and any international deals that could be struck (refer below). We have rolled forward and updated our assessment of what the 2 key growth projects could deliver in sustainable EBITDA for the Mining Services division below. Source: Chester Asset Management, with multiple input sources Mining Services - International Opportunity Maybe it is just us but we are quite excited about the potential for MIN to take its crushing capabilities overseas. As a reminder the NextGen 2 Crusher is IP of MIN. MIN recently signed an agreement with Metso Outotec ("Metso"), whereby Metso will market the crushers internationally, however they still do not have the ability to sell plants without MIN's agreement. The benefit of the NextGen Crushing plants are:
In addition to Wonmunna, one of the new NextGen 2, 12Mtpa crushing plants has recently been commissioned at BHP's Mt Whaleback mine. Source: MIN Site Tour presentation April 2021 Some investors may look at the potential for MIN to go overseas as potentially risky but there would be ways to strike commercial terms that would not involve operatorship, such as:
Additionally, if MIN were to retain operatorship they could be selective in jurisdictions such as avoiding certain parts of Africa. What is the TAM of the international opportunity? This is a tough question to answer given the information isn't readily available but we have performed a crude analysis below. Global crushing appears a relatively competitive market with multiple operators. Research suggests that Sandvik is the leading provider with ~14% of a USD11bn market with Metso number 2(5). Given the portability and cost vs traditional options we don't see why a Next Gen solution can't start to represent a meaningful slice of the global crushing market. Below we have conducted a theoretical exercise that conceptually estimates annual crushing additions outside of Australia at ~400Mtpa. Source: Chester Asset Management with inputs from various sources
What could commercialisation look like? Under a contractor model, assuming similar economics to the Australian operations, MIN 50% share and a build-up of 5 years on these contracts over a longer period we can see scenarios whereby the international opportunity can generate meaningful margin to MIN. Source: Chester Asset Management i.e. under these assumptions a 20Mtpa contract could generate AUD30m p.a. in EBITDA, MIN share being AUD15m but 1 of these p.a. for 5 years could mean cumulative AUD75m in recurring EBITDA in 5 years' time. An alternative to this model could be a sale of crushers for which MIN's take a royalty. A hypothetical example of what this may look like is presented below. Source: Chester Asset Management
We iterate both of these models are hypothetical and the international opportunity is at a very early stage. Management has not provided indication of the likely commercialisation model or LT potential. Energy The WA onshore energy scene has seen some excitement over the past 5 years and MIN hasn't been too far off the scent. Recent discoveries such as Waitsia(6) and West Erregulla. indicate there is a lot of prospectivity in the Perth basin. Like most things that they do MIN's energy exploits aren't a flash in the pan based on recent successes but part of an orchestrated plan to replace diesel with micro LNG for internal purposes and as a service to clients. Source: Mineral Resources 2021 Investor Day MIN has an enormous land package in the Perth Basin (7,300 sq km gross acreage) and North Carnarvon Basin (6,300 sq km). The difficulty for us trying to analyse it is that they haven't really announced any leads or prospects. We do know that MIN has announced the potential to drill 2 wells in FY22 and 2 more in FY23. The first of these is targeting the Lockyer Deep prospect. We note you don't normally drill wells without identifying a prospect first. The differential between Warrego and Strike Energy provides some insights into how the market is valuing the highly prospective Perth Basin Acreage, which we have used to impute a potential value for MIN's acreage. Chester Asset Management We appreciate the market has more colour on STX upside via the key prospect of South Erregulla(7) but see no value being ascribed to MIN's energy assets in market valuations. Vertical Integration is the goal Looking at MIN's energy ambitions another way MIN has previously stated that diesel costs more than AUD140m p.a. Converting diesel to gas would materially reduce greenhouse gas emissions and ongoing reliance on 3rd party suppliers as well as save them money. In their FY20 sustainability report MIN notes total diesel consumed of 3.4 PJ. If we assume costs to the wellhead of ~AUD2.00/GJ for Perth Basin and AUD3/GJ for piping and conversion to LNG all in costs could equate to ~AUD5/GJ. The opex savings could exceed AUD120m p.a. based on FY20 energy requirements. Ignoring the cost of converting the transport fleet to micro LNG at 6x EBITDA this equates to ~AUD700m of value. Notably however with MIN's growth ambitions future diesel requirements and savings would be significantly greater than the FY20 levels. Additionally if MIN were to make a material discovery we believe they would look to offer an integrated energy solution involving gas as an additional pillar within Mining Services. Steady State Earnings The following table represents our projection of the steady state EBITDA of MIN if the growth opportunities outlined in Iron Ore, Lithium and Mining Services are delivered within a 5 year timeframe. Cleary there are some immediate pressures around labour availability so this is a very hypothetical example but we thought worth highlighting the opportunity to develop MIN into a AUD3bn EBITDA p.a. business would clearly lead to a business much larger than the current AUD9bn market cap. Source: Chester Asset Management Keep on crushing it MINs (1) For those not familiar with the show the production ceased after 5 years because the Rock was unavailable (2) Assuming USD650/t real long term (LT) 6% spodumene prices. (3) USD200-250m for 25ktpa of capacity for hydroxide (4) Refer ASX announcement 23/4/2021 (5) (VIEW LINK) (6) A reminder that in December 2017 MIN previously bid for AWE (for its 50% share of Waitsia) (7) Identified as potentially connected to West Erregulla (Best estimate 1.6 Tcf gas with Geological Chance of Success at 57%) DISCLAIMER Past performance is not a reliable indicator of future performance. Positive returns, which the Chester High Conviction Fund (the Fund) is designed to provide, are different regarding risk and investment profile to index returns. This document is for general information purposes only and does not take into account the specific investment objectives, financial situation or particular needs of any specific individual. As such, before acting on any information contained in this document, individuals should consider whether the information is suitable for their needs. This may involve seeking advice from a qualified financial adviser. Copia Investment Partners Ltd (AFSL 229316, ABN 22 092 872 056) (Copia) is the issuer of the Chester High Conviction Fund. A current PDS is available from Copia located at Level 25, 360 Collins Street, Melbourne Vic 3000, by visiting chesteram.com.au or by calling 1800 442 129 (free call). A person should consider the PDS before deciding whether to acquire or continue to hold an interest in the Fund. Any opinions or recommendations contained in this document are subject to change without notice and Copia is under no obligation to update or keep any information contained in this document current.
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