VSA Morning Miner, 15/03/21
Ferro Alloy Resources (LON:FAR)
Ferro Alloy Resources (LON:FAR) has announced strategic investment from Vision Blue Resources the new investment vehicle founded and led by former Xstrata CEO Sir Mick Davis for up to US$12.6m. The deal has been structured as a phased investment for Vision Blue and certain co-investors, including former Anglo American CEO, Tony Trahar, and will be transformative, in our view, for FAR as it progresses development of the Balasausqandiq vanadium project, in Kazakhstan.
Sir Mick Davis will take up the role of Chairman, with current Chairman Chris Thomas reverting to his role as NED.
The strategic investment will total up to US$12.6m at 9p/sh. with an initial investment of US$3.1m. This will be in the form of US$1.5m at completion of this deal with 11.97m shares issued. A further US$1.6m will be structured as convertible loan notes convertible at the issue price. The Investors will then have the right to acquire up to US$9.5m based on milestones including up to US$7m within a three month period following the receipt of certain consent in Kazakhstan and up to a further US$2.5m after the completion of the feasibility study. At this point if fully utilised the Investors would hold 91.78mn shares and 21.29% of FAR.
The Investors will then have the rights to invest up to US$30m in the project at higher share prices based on project milestones, offtake rights of up 25% of FAR’s vanadium bearing products for an additional US$10m investment (to be purchased at market prices). The investors will also support FAR in identifying and recruiting new members of the board and management team to support future development and execution of the company’s plans. It is worth highlighting that Phase 1 capex is just cUS$100m.
It is hard to overstate the significance of this transaction for FAR, as well as funding to enable the completion of the company’s near term milestones and broader objectives, the network and skillset of the new investors will be a huge positive in supporting FAR from a financial, technical and product marketing standpoint. Our model and valuation will need to be adjusted to reflect the investment structure accordingly but FAR looks to be substantially derisked and with a funding pathway to full production.
We reiterate our Buy recommendation and £1.71/sh. target price.
Oliver O'Donnell, CFA, Head of Research & Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
Paul Renken, Senior Geologist | T: +44 (0)20 3005 5011 | E: prenken@vsacapital.com
VSA Capital Research | T: +44 (0)20 3005 5000 | E: research@vsacapital.com
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