Why $60m was a 'good' outcome given the JVA restrictions within the 5% Option Exercise
Posted: Sat Jul 23, 2022 1:56 pm
Seen some IMO very unfair criticism (voiced by a minority thankfully) about some of the FMV estimations made by some of the more well informed investors that inhabit the GGP investor multiverse of chat boards and platforms.
So I am reposting and expanding upon some of my thoughts posted on another site to try and explain why IMO Shaun and the GGP team and consultants have pulled off a really good outcome at $60m when considered against the challenges set by the confidential terms and conditions set in the JVA around the option exercise.
Essentially, the estimates made previously by many (including brokers) at larger values really were closer representations of FMV but nobody outside the parties with access to the JVA terms realised quite how much GGP's hands were tied in the negotiations and arbitration process until the price determination was made and Shaun has been able to be more open about the process.
The 5% had a few limitations in scope that GGP had to combat to achieve even this modest $60m including but not limited to:
1/ Data cut off for 15/12/21
2/ JVA set very conservative boundaries around such factors as commodity prices upon the valuation methodology to be used but we don't know how severe, just that they existed as per the 'Price Not Value' slide in updated corporate presentation but they were described as very prescriptive
3/ PFS was set as the base for valuation although GGP's MRE 'shifted the paradigm' somewhat , go and look at the MRE and the methods used and the comparisons made to PFS methodology to justify the GGP MRE numbers to help achieve GGP's success - the detailed methodology outside the 'numbers' is very much targeted at a comparative analysis to the PFS
- https://www.ggpchat.co.uk/viewtopic.php?t=127
4/ In addition, go study the Valmin code and the 3 suggested valuation approaches and techniques contained within each and you see the immense ranges created by differing methods and you can see how subjective valuations are, akin to the JORC Code for instance
- https://www.ggpchat.co.uk/viewtopic.php?t=132
5/ Shaun stated the game theory reasoning around the fact that required GGP to come in at the more modest end of their ranges to assure success in the webinar using an Estate Agent analogy due to the fact that the adjudicator had to choose between two valuations VS being able to recommend a value themselves after reviewing both.
What was achieved despite the above by GGP is quite remarkable but it is a PRICE within the strictures of a very prescriptive and restricted exercise NOT a reflection of TRUE VALUE, the information is all out there in the GGP MRE, Valmin Code, latest Corporate Presentation, RNS's and interviews and their transcripts/notes to support the above points.
And then we look to the effort made by Shaun and the team at GGP and the resources they pulled into putting together their valuation against these limitations - and I think it best to let Shaun's own words speak to that effort from the LSE Webinar on 21st July.
Excerpt:
- We caught up last week and went through the presentation but this is really the presentation I wanted to give so today although we have a full deck of slides here I think what we'll do is just work through the new four or five slides try to do that in relatively short water because I know I enjoy and I think the people participating in this program really enjoyed that Q&A session so with no further ado let me just quickly walk through the new slides in this deck
- I will pause for 30 seconds because I always do love to orientate around our strategy I think we have a very clear vision of where we're headed with Greatland that's around our three pillars of delivering an expanded Havieron investing in the drill bit to create option value and have the next discovery and then finally a disciplined approach to future acquisition with that what I’d like to do on this slide is really just give a bit of a brief overview and for those who have kind of followed me in the past I’ve always talked about solving the transition issues in my first 18 months at greatly and this was an incredibly important transition issue to resolve and with this what we're able to achieve was the milestone for this option being initiated in terms of the price was effectively gated on that pre-feasibility study that came out in October so two months after that in December and I think I’d always kind of tried to be open with people that that would be the starting point of those discussions and what we were able to achieve was a five-fold increase so in those 64 days from release of the PFS today we improved the value of Havieron by a billion dollars an outstanding outcome and it was built up from first principles with the updated resource in reserve which had increased 50 percent and that delivered this uplift in such short order and I think shows us the trajectory of Havieron and so when I think about this I think about in March 2019 when Greatland entered that farm in and a much less understanding of the Havieron ore body what we had on a 100% basis around about a 93 million dollar whole of Havieron value
- walking forward to the PFS in late 2021 we had a valuation of 228 then although we're announcing it today with a date we valued it at the date that the option pricing mechanism was triggered on the 15th of December, we achieved this stunning transformation to 1.2bn and that's 12.9 times in that kind of ballpark two years from the farm in but it's five-fold, it's over five-fold from that pre-feasibility study and of course I’ve mentioned that trajectory that we have, we are in the fast-paced growth of Havieron, we're still going to expand the Southeast Crescent we're still going we're still yet to really fully form and discuss and understand that block caving potential and of course we continue to benefit from exploration success and as it happens our announcements were a bit like buses, you wait a long time then two come at once we also announced our six weekly exploration update and without digressing too much into that you continue to see the asset deliver
- the Southeast Crescent continues to tick over like a Swiss watch the northern breccia had some great hits but that eastern breccia was the new story for me bigger to the than we understood before we've stepped it out to the north and more high grade intercepts so that's becoming a hot, a good grade a high grade zonation for us
- so as we walk into the building blocks of how we achieved this outcome it was around that march release of our updated resource and reserve and what we achieved there was a 53% increase in the resource a 50% increase in the reserves and we delivered six and a half million ounces gold equivalent
- 2.9 million ounces of that was in a reserve so effectively was structured around a mine plan that we could demonstrate and that growth has been 43% compound annual growth since that release of the maiden resource in late 2020 and that is really testament that this is in this high growth phase and if we continue to see results like we have remember this is cut off as of December 2021 and over the last nine months we've continued to see tremendous exploration results so there should be confidence out there that this continues to grow this system as we deliver the growth drilling we understand it more we define it more and we can delineate the outcome more we remain in this rapid growth phase
- so although we are pleased that the value uplift is a billion and you know that that should be you know right at the top end of expectations, you know it's anchored around that PFS view and by bringing out that updated resource and reserve we shifted the paradigm
- we demonstrated more value because that is the building blocks of understanding value understanding the resource understanding the mine plan are the building blocks upon which you understand the mine and so that was a courageous decision by the team to decide to come out and unilaterally bring out that updated resource and reserve but essential to try to optimize this outcome within the structure that we had and to protect the interest of shareholders and that's what I’d undertaken to do
- that we would do the time energy and effort to present this the best way we could but what we were trying to do is get that outcome within the confines of the agreement
- so this today sets a price not a value for the asset, the joint venture agreement doesn't represent true market value in the opinion of the board and this very much is anchored off the back of that mechanism
- it's a highly prescriptive process and particularly the binary nature of the outcome, if the if you had were appointing an independent valuer and one party say puts you know the lowest bid and one party puts in the highest bid they can imagine, that independent person can come out with a compromise based on their value and anyone who's had their house valued as opposed to a real estate opinion on it probably understands that's inherently a conservative approach because it's about what you, it's about not what you know about what you can prove
- but within this process you had to choose one or the other, now I’ve spent 18 months thinking about the game theory of that and really if the other party sticks to a normal process and puts in a modest view on value you really cannot put at the top of the value and remember Newcrest are a very credible organization with a good brand they are the manager of the asset they have access to the information and they are the author of an incredibly impressive 350 you know odd page very detailed and high quality pre-feasibility study
- so those incumbent advantages were really substantial for us to have to address and that impacts the way we approach this because what we wanted to do is make sure that we could find the point where we could be successful in this endeavour and demonstrate the value growth of the asset and I think it's also worth mentioning because I’ve said that we the board doesn't feel this represents full value, we actually look to say well let's step outside the JVA
- Here is an offer, if the part, if our joint venture partner thinks it's worth less than this, we will pay you considerably more for this and I think that reflects the conviction that today is not what we regard as a true value, a true market value we would have been delighted to have transacted and acquired some of Newcrest stake for a much higher price and I think have we been successful in doing that I still think it would be absolutely compelling value for us
- we didn't put in the highest number we thought we actually put in a value where we thought it was still compelling but substantially higher than their position and our own for that matter and although I want to move on to the Q&A I do just want to wrap up around the process
- because previously I’ve identified and talked about that people should have confidence in our approach but now I can probably just touch on that briefly so we came out with the updated resource we had Stuart Masters who actually sits on the JORC committee co-signed that as our confident person , we had SRK consulting come in and endorse as a second peer review in terms of the reserves a similar process where we had EnTech come in and revisit the optimizations of that mine plan, had SRK come in endorse and again it was second peer review
- that information could then be fed into SRK to think about an overall technical report, overall understanding of the exploration opportunity this information could be fed into PWC for a very structured and comprehensive approach to a formal valuation built up on supported data overlaying that with the corporate advisor to make sure we understood it commercially and then we used another group which included Nev Power some of you might know was head of you know 50 billion Fortescue to come in and help quarterback that with me in terms of making sure we thought through the technical and commercial overlay
- this was an incredibly thorough process and one of the great things that this process really forced us to do was it expedited our cycle time for understanding our own asset and I think we feel really confident that we have a very comprehensive understanding and that we're able to convey that to be successful in a process.
Link to full Interview transcript and video:
https://www.ggpchat.co.uk/viewtopic.php?t=358
So I am reposting and expanding upon some of my thoughts posted on another site to try and explain why IMO Shaun and the GGP team and consultants have pulled off a really good outcome at $60m when considered against the challenges set by the confidential terms and conditions set in the JVA around the option exercise.
Essentially, the estimates made previously by many (including brokers) at larger values really were closer representations of FMV but nobody outside the parties with access to the JVA terms realised quite how much GGP's hands were tied in the negotiations and arbitration process until the price determination was made and Shaun has been able to be more open about the process.
The 5% had a few limitations in scope that GGP had to combat to achieve even this modest $60m including but not limited to:
1/ Data cut off for 15/12/21
2/ JVA set very conservative boundaries around such factors as commodity prices upon the valuation methodology to be used but we don't know how severe, just that they existed as per the 'Price Not Value' slide in updated corporate presentation but they were described as very prescriptive
3/ PFS was set as the base for valuation although GGP's MRE 'shifted the paradigm' somewhat , go and look at the MRE and the methods used and the comparisons made to PFS methodology to justify the GGP MRE numbers to help achieve GGP's success - the detailed methodology outside the 'numbers' is very much targeted at a comparative analysis to the PFS
- https://www.ggpchat.co.uk/viewtopic.php?t=127
4/ In addition, go study the Valmin code and the 3 suggested valuation approaches and techniques contained within each and you see the immense ranges created by differing methods and you can see how subjective valuations are, akin to the JORC Code for instance
- https://www.ggpchat.co.uk/viewtopic.php?t=132
5/ Shaun stated the game theory reasoning around the fact that required GGP to come in at the more modest end of their ranges to assure success in the webinar using an Estate Agent analogy due to the fact that the adjudicator had to choose between two valuations VS being able to recommend a value themselves after reviewing both.
What was achieved despite the above by GGP is quite remarkable but it is a PRICE within the strictures of a very prescriptive and restricted exercise NOT a reflection of TRUE VALUE, the information is all out there in the GGP MRE, Valmin Code, latest Corporate Presentation, RNS's and interviews and their transcripts/notes to support the above points.
And then we look to the effort made by Shaun and the team at GGP and the resources they pulled into putting together their valuation against these limitations - and I think it best to let Shaun's own words speak to that effort from the LSE Webinar on 21st July.
Excerpt:
- We caught up last week and went through the presentation but this is really the presentation I wanted to give so today although we have a full deck of slides here I think what we'll do is just work through the new four or five slides try to do that in relatively short water because I know I enjoy and I think the people participating in this program really enjoyed that Q&A session so with no further ado let me just quickly walk through the new slides in this deck
- I will pause for 30 seconds because I always do love to orientate around our strategy I think we have a very clear vision of where we're headed with Greatland that's around our three pillars of delivering an expanded Havieron investing in the drill bit to create option value and have the next discovery and then finally a disciplined approach to future acquisition with that what I’d like to do on this slide is really just give a bit of a brief overview and for those who have kind of followed me in the past I’ve always talked about solving the transition issues in my first 18 months at greatly and this was an incredibly important transition issue to resolve and with this what we're able to achieve was the milestone for this option being initiated in terms of the price was effectively gated on that pre-feasibility study that came out in October so two months after that in December and I think I’d always kind of tried to be open with people that that would be the starting point of those discussions and what we were able to achieve was a five-fold increase so in those 64 days from release of the PFS today we improved the value of Havieron by a billion dollars an outstanding outcome and it was built up from first principles with the updated resource in reserve which had increased 50 percent and that delivered this uplift in such short order and I think shows us the trajectory of Havieron and so when I think about this I think about in March 2019 when Greatland entered that farm in and a much less understanding of the Havieron ore body what we had on a 100% basis around about a 93 million dollar whole of Havieron value
- walking forward to the PFS in late 2021 we had a valuation of 228 then although we're announcing it today with a date we valued it at the date that the option pricing mechanism was triggered on the 15th of December, we achieved this stunning transformation to 1.2bn and that's 12.9 times in that kind of ballpark two years from the farm in but it's five-fold, it's over five-fold from that pre-feasibility study and of course I’ve mentioned that trajectory that we have, we are in the fast-paced growth of Havieron, we're still going to expand the Southeast Crescent we're still going we're still yet to really fully form and discuss and understand that block caving potential and of course we continue to benefit from exploration success and as it happens our announcements were a bit like buses, you wait a long time then two come at once we also announced our six weekly exploration update and without digressing too much into that you continue to see the asset deliver
- the Southeast Crescent continues to tick over like a Swiss watch the northern breccia had some great hits but that eastern breccia was the new story for me bigger to the than we understood before we've stepped it out to the north and more high grade intercepts so that's becoming a hot, a good grade a high grade zonation for us
- so as we walk into the building blocks of how we achieved this outcome it was around that march release of our updated resource and reserve and what we achieved there was a 53% increase in the resource a 50% increase in the reserves and we delivered six and a half million ounces gold equivalent
- 2.9 million ounces of that was in a reserve so effectively was structured around a mine plan that we could demonstrate and that growth has been 43% compound annual growth since that release of the maiden resource in late 2020 and that is really testament that this is in this high growth phase and if we continue to see results like we have remember this is cut off as of December 2021 and over the last nine months we've continued to see tremendous exploration results so there should be confidence out there that this continues to grow this system as we deliver the growth drilling we understand it more we define it more and we can delineate the outcome more we remain in this rapid growth phase
- so although we are pleased that the value uplift is a billion and you know that that should be you know right at the top end of expectations, you know it's anchored around that PFS view and by bringing out that updated resource and reserve we shifted the paradigm
- we demonstrated more value because that is the building blocks of understanding value understanding the resource understanding the mine plan are the building blocks upon which you understand the mine and so that was a courageous decision by the team to decide to come out and unilaterally bring out that updated resource and reserve but essential to try to optimize this outcome within the structure that we had and to protect the interest of shareholders and that's what I’d undertaken to do
- that we would do the time energy and effort to present this the best way we could but what we were trying to do is get that outcome within the confines of the agreement
- so this today sets a price not a value for the asset, the joint venture agreement doesn't represent true market value in the opinion of the board and this very much is anchored off the back of that mechanism
- it's a highly prescriptive process and particularly the binary nature of the outcome, if the if you had were appointing an independent valuer and one party say puts you know the lowest bid and one party puts in the highest bid they can imagine, that independent person can come out with a compromise based on their value and anyone who's had their house valued as opposed to a real estate opinion on it probably understands that's inherently a conservative approach because it's about what you, it's about not what you know about what you can prove
- but within this process you had to choose one or the other, now I’ve spent 18 months thinking about the game theory of that and really if the other party sticks to a normal process and puts in a modest view on value you really cannot put at the top of the value and remember Newcrest are a very credible organization with a good brand they are the manager of the asset they have access to the information and they are the author of an incredibly impressive 350 you know odd page very detailed and high quality pre-feasibility study
- so those incumbent advantages were really substantial for us to have to address and that impacts the way we approach this because what we wanted to do is make sure that we could find the point where we could be successful in this endeavour and demonstrate the value growth of the asset and I think it's also worth mentioning because I’ve said that we the board doesn't feel this represents full value, we actually look to say well let's step outside the JVA
- Here is an offer, if the part, if our joint venture partner thinks it's worth less than this, we will pay you considerably more for this and I think that reflects the conviction that today is not what we regard as a true value, a true market value we would have been delighted to have transacted and acquired some of Newcrest stake for a much higher price and I think have we been successful in doing that I still think it would be absolutely compelling value for us
- we didn't put in the highest number we thought we actually put in a value where we thought it was still compelling but substantially higher than their position and our own for that matter and although I want to move on to the Q&A I do just want to wrap up around the process
- because previously I’ve identified and talked about that people should have confidence in our approach but now I can probably just touch on that briefly so we came out with the updated resource we had Stuart Masters who actually sits on the JORC committee co-signed that as our confident person , we had SRK consulting come in and endorse as a second peer review in terms of the reserves a similar process where we had EnTech come in and revisit the optimizations of that mine plan, had SRK come in endorse and again it was second peer review
- that information could then be fed into SRK to think about an overall technical report, overall understanding of the exploration opportunity this information could be fed into PWC for a very structured and comprehensive approach to a formal valuation built up on supported data overlaying that with the corporate advisor to make sure we understood it commercially and then we used another group which included Nev Power some of you might know was head of you know 50 billion Fortescue to come in and help quarterback that with me in terms of making sure we thought through the technical and commercial overlay
- this was an incredibly thorough process and one of the great things that this process really forced us to do was it expedited our cycle time for understanding our own asset and I think we feel really confident that we have a very comprehensive understanding and that we're able to convey that to be successful in a process.
Link to full Interview transcript and video:
https://www.ggpchat.co.uk/viewtopic.php?t=358
