Metal Tiger PLC (LON:MTR) Chief Executive Officer Michael McNeilly caught up with DirectorsTalk for an exclusive interview to discuss the sale of T3 project and the new exploration JV.
Q1: Metal Tiger has released some exciting news today and it looks to be an excellent deal for MTR shareholders, can you give us some colour around it Michael?
A1: First off, I’d like to say I think it’s an excellent deal for both Metal Tiger and MOD shareholders, primarily because we’re selling our 30% interest in the T3 project. We’re essentially rolling it up for shares and cashless options, essentially subscription rights where we don’t have to pay any money in order to exit, in order to receive shares, obviously this is subject to certain restrictions.
What it really is doing is it’s giving MOD 100% of the T3 project which will dramatically improve its ability to finance the T3 project which I think will get them a much better cost of capital when it comes time, should the DFS basically support a decision to develop and ultimately mine in T1, T2 next year. So, it’s a very good deal in that sense, it’s sort of cleaning up the joint venture structure to allow for the project to go ahead in terms of financing.
Also, I think the key thing for us is that it’s not we are losing our interest in the project, obviously we’ll have no more funding commitments on T3 going forward but we also get increased exposure to the exploration in the belt. There’s only the T3 project which is essentially circa 24 square kilometre farm block which is where the product will be developed and where the mining licence will be applied for. That only represents out of the circa 8,000 square kilometres within the JV, 0.3%, so there’s a huge amount, there’s an entire district that needs to be explored and obviously we’re drilling at T3 dome currently.
Again, it’s important that I point out that this deal is obviously subject to shareholder approval by MOD and a few other conditions precedent but we’re hopeful that it will complete some time in October/November of this year.
The other thing that I think is incredibly important to note is that the valuation methodology that was used for this, it was very fair so we’re essentially looking at the see-through enterprise value in MOID and the operator in order to calculate what the value of the 30% we hold is. So, we’ve essentially swapped it with them and we used the 20-day VWAP in order to do that which will explain the slight discrepancy between the value that we put out of A$27.7 million and the consideration value that MOD put out at A$26.6 million.
I think the other key thing to note is it’s not really like we’ve sold our project because we have swapped it for equity and obviously subscription rights. So, if you take the fact that MOD is trading at a significant discount to NAV, I would say they’re probably around a .3 to NAV right now, so if they re-rate to .6, we would have doubled the value of our holdings in MOD. Obviously, this is assuming that there’s no more dilution in that period and of course, we fully expect that there will be dilution in MOD as they progress the development of T3 but also continue exploration within our new joint venture.
The subscription rights or what we call ‘options’ in the announcements, essentially we are capped at 12.5% shares in MOD but as MOD dilutes, we can take up the subscription rights for new shares at no cost to Metal Tiger and that will basically act as anti-dilution. We have agreed to a 12-month lock-up on our shares, and any shares created by options, from completion, after that if we haven’t used up most of the options at that point should we choose to sell down some shares at that point in time, – which I don’t think is the intention because I’m fairly convinced that over the period of 3 years, most of those options will ultimately end up acting as anti-dilution provisions – we would be able to take up the options to replace shares essentially maintaining our stake.
Finally, I would point out that whilst we’re funding the 30% at the project level, there is nothing to prevent us from providing financing either via rights issue or indeed by participating in a placing to MOD to basically maintain our exposure to MOD. So, it’s a very very good deal for us, it removes the development burden of the joint venture, certainly for Metal Tiger and it makes it much easier for MOD to finance.
There’s obviously a lot to this deal and there’s options to MOD to essentially buy-out in exactly the same see-through methodology that was used on this, upon announcement of any scoping study. So, if they drilled out a deposit to a certain degree, published a scoping study which is a positive scoping study with an NPV figure then we will be using essentially the broker notes valuation to see what the percentage of that see-through value would be in MOD and that’s how we would then calculate either the amount of cash, shares or subscription rights that would be essentially given to Metal Tiger in order to sell that 30%.
I would say I believe that MOD are actually incentivised to hit these scoping study options because after 3 years, they have the option to rollup the entire exploration joint venture but that would also carry with it a 2% net smelter royalty over the ground that remains. I’m not saying that there will necessarily be 8,000 square kilometres of ground left in 3 years’ time, they may have had to drop some of that ground but certainly, I would imagine most of the perspective ground, or ground where exploration has delivered results, will remain. What that essentially means is that they’re incentivised to hit these scoping study options, so they don’t have to pay the 2% royalty.
I guess the other thing to really note for shareholders is in the event of a take-out, of a recommended offer by MOD’s Board for the company, all of our subscription rights automatically convert into MOD shares. So, if anything major happens in the belt and somebody’s willing to pay a lot of money for MOD then those options, any of them that remain, convert into shares which, again, I think is important to note.
Q2: I think you’ve touched on this already, but can you just explain the significant to Metal Tiger’s shareholders that this deal holds?
A2: We will be 2 times leveraged at exploration on completion of this deal which essentially means we have increased MTR’s exposure to exploration, we maintain exposure to the T3 project, we become a large shareholder, we have formalised the joint venture with them and we will have a Board seat as well.
So, I think it’s an incredible deal for both parties and MOD will always have the ability to essentially go to 100%, they will be able to wrap up the entire JV in 3 years. Ultimately, they have an incredibly supportive shareholder, MOD shareholders, of which many MTR shareholders are also MOD shareholders no doubt, should take note that we do have this 12-month lock-up over the new shares issued. So, one should not be worried about Metal Tiger creating an overhang in the market, we are here for the long-term, we really really believe in the significance and the importance of the district-scale potential of the Kalahari copper belt and I think this deal places us in an incredible position to reap the benefits of any future exploration and also to maintain exposure to the T3 project without having to pay for the development cost.
Q3: The Kalahari copper belt, it looks to be an exciting highly-prospective copper zone, what else is going on here for you?
A3: So, we’ve also got our investment, 18% current holding with the option to go up to 50% in Kalahari Metals which adds an additional 4,000 square kilometres of exposure to Metal Tiger. Just before I go to that, I would also point out that we will also have increased exposure to the non-JV’s so the 100% MOD licenses which obviously MOD will be progressing at T1 and T7, so we’ve increased our exposure there as well.
I think the key to note on Kalahari is there’s been a bit of a paradigm shift in terms of what we think we should be looking for in the belt because of the discovery of T3, if you look at the T3 dome, there’s 7 buried domes that we’re looking to drill and the first one, A4, is already hit significant visible copper mineralisation. Of course, that hasn’t been assayed yet and I would caution shareholders to wait until assays have been revealed before judging whether something is economic or not but it’s obviously very encouraging that the airborne EM and magnetics work that has been done is really helping to guide where to put drill holes and it seems to be working as a methodology.
Now, this same paradigm shift is being taken note of at Kalahari Metals and they are looking at our joint ground to essentially look for these buried dome-type structures as opposed to the Zone 5 or T1 type deposits, very vertical deposits where you have to always worry about tonnes per vertical metre. So, I think that’s incredibly encouraging and I do think that if any success from MOD’s exploration campaign will have a huge carry-over to the value of Kalahari Metals so that is progressing right now with the magnetics and it’s also started the environmental permitting process to be able to establish drill targets.
So, it a very very encouraging time and I think it’s going to be a very exciting 12 months.
Q4: So, what’s next for Metal Tiger?
A4: Well, I think we’ve obviously worked hard on this, it’s been 5 months of back and forth negotiations and documentation.
What’s next for Metal Tiger? I think we need see the fruits of this exploration campaign, obviously we’re constantly looking at other deals, but I think for now we’re very comfortable with where we are. Obviously, we need to ensure that close-out the final pieces for completion of this deal and go forward from there, potentially adding other things to the portfolio.
We’re always conscious of having a balance between direct project investments where we are contributing versus making investments where there’s either a near-term view to some sort of liquidity event or at least we’re going to hold liquid stock so that we’re constantly improving our balance sheet.
I think what’s also key is that this deal really has materially improved our balance sheet and as MOD eventually rerates, both through exploration and through development of T3, and hopefully a recovering copper price for the next year, it’s obviously not been a great couple of weeks for copper. I think we will also see a value uplift in Metal Tiger as a result.
