HVY: Share price rising ahead of mine economics reveal?

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 3,805,000 HVY shares and 50,000 HVY Options and invested $50,000 in the HVY Tranche 1 royalty agreement at time of publishing this article. The Company has been engaged by HVY to share our commentary on the progress of our Investment in HVY over time.

Our micro cap Investment Heavy Minerals (ASX:HVY) is up ~500% from its low point over the last 12 months...

And looks like it wants to keep going.

HVY has gone from a share price low of less than 5.5c to now trade at ~24.5c per share.

(our Initial Entry price is 10c)

AND HVY is still only capped at $16M.

We think the HVY share price is now reaping the rewards of management putting in the hard yards last year by raising ~$2M via a non-dilutive royalty sale agreement.

(Instead of the usual “quick cash injection band-aid” of a heavily discounted equity raise with free oppies that weigh on share prices for months, like most small resources companies do)

And the HVY share price run is indicating that the market now believes that HVY can further progress their project using this non-dilutive funding method.

HVY is developing a garnet project in Western Australia.

Garnet is an important industrial material specifically used in abrasive sand-blasting to treat and prevent rust on ship hulls, bridges and other large metal structures.

Basically, the more investment that goes into revitalising old ships or infrastructure, the more demand there would be for HVY’s product...

HVY’s pre-feasibility study (where we find out specific mine economics) is due any week now...

HVY’s project is next door to the world’s biggest garnet mine.

Earlier in the year, one of the biggest talking points out of the US Trump administration was ships and the US Navy fleet.

Including how much the US military fleet had aged and how badly things were rusting.

There was a big picture of a rusted navy ship that was being bandied around in press conferences:

Even before the Trump administration the US introduced an Infrastructure & Jobs Act bill which included ~US$40BN of new funding for bridge repair, replacement, and rehabilitation,

That deal included US$2BN to fix some 30,000 steel bridges, including removal of rust - the key use of garnet.

(Source)

Extracting a few more years of usage out of critical infrastructure can be a lot cheaper than building it from scratch

...which is the basis for our bet that demand for garnet will grow over the coming years.

Especially in the West (and the US specifically).

Already the garnet market is expected to be in a deficit starting in 2027.

(Those deficits will become a problem around the time HYV’s project is ready to come online)

(Deficits to grow from 2025 onwards - source)

HVY’s project is in the feasibility study stage with a 2022 scoping study showing its project can deliver a NPV of $253M.

And in the coming weeks we should know how HVY’s project stacks up in a more detailed Pre Feasibility Study (PFS) which is due in the coming weeks...

The best case scenario for the PFS will be an improvement to the NPV numbers from the 2022 scoping study.

The “even better” case scenario will be if we see CAPEX go lower and NPV go higher...

(Implying a lower capital outlay is needed to make a bigger return over the project's life).

The 2022 scoping study had the NPV to CAPEX ratio at ~2.3x...

The HVY directors incentives pay out a bonus if the NPV to CAPEX ratio in the pre-feasibility study is above ~2.5x

...which is possible if HVY can deliver the PFS holy grail: the NPV up, CAPEX down combination.

(or even CAPEX up, but NPV up more)

(Source)

Ultimately HVY’s NPV number will dictate how the market values the company now.

At the moment HVY is trading at ~6% of the value of its project’s Net Present Value

(based on the A$253M NPV from the 2022 scoping study).

Typically as companies move a project closer to a Final Investment Decision (FID) the market will start to value it at higher multiples of the project's NPV.

A project in the PFS/BFS stage typically has the market valuing it at ~ 30% to 60% of a project's NPV.

We hope that as HVY progresses its feasibility studies, the market considers its project de-risked technically and starts to value it closer to its project’s NPV.

Now we just wait to see the numbers in HVY’s soon to be released pre-feasibility study...

So why has the HVY share price been moving up?

The short answer:

HVY did NOT conduct one of those horrible bear market, heavily discounted share placements with options that destroy a company’s share price.

Instead they went for the much “harder to do” route that was better for HVY shareholders:

A non-dilutive royalty sale agreement.

(we’ll explain what this is in a second).

Over the last 2 years of hard market conditions in the small end, most small resource explorers and developers needed to raise money.

The market conditions for early stage resources were terrible.

So to raise cash these companies had to offer capital raises at heavily discounted share prices, usually with free attaching oppies.

We have all seen how swathes of newly issued cheap shares weighed heavily on share prices

...and most are yet to recover.

(especially with free oppies that allowed investors to sell new shares on market and retain upside via holding the option)

Not HVY...

We think the reason why HVY has started such a strong share price run over the last 12 months is due to how the company has navigated raising cash during this time.

HVY didn’t offer the market a heavily discounted capital raise with oppies like most other companies did...

HVY took the much harder route of a non-dilutive ~$2M “royalty sale agreement”

(which they completed in August 2024)

A “royalty agreement” is a non-dilutive funding method for early stage resource companies.

In HVY’s case, it means the company sells down a tiny percentage of the future mine revenue (1.05%) in return for a non-dilutive cash injection now.

These royalty sale agreements are very common in the USA.

Securing cash via a royalty agreement means that upfront dilution to existing HVY shareholders has been significantly reduced and the company’s tight capital structure maintained.

(allowing the share price to run as the money received is deployed into advancing the project)

We think this funding method could end up being the much better option for existing shareholders.

Royalty sales in the mining industry are not common in Australia - the first tranche that HVY pulled off was actually the “the First Syndicated Non-Dilutive Pre-Paid Royalty to be done in Australia”.

The fact that HVY managed to get that one away is actually a really big achievement.

It took many hard months but it helped HVY avoid a big dilutive capital raise.

And now the second tranche of the royalty sale is open.

IF HVY can pull off this second royalty tranche as well, it could mean the company avoids a traditional equity raise and can keep its tight capital structure...

and hopefully enjoy continued and unencumbered share price appreciation.

We think HVY’s bobbing, weaving and avoiding a “bear market cap raise sucker punch” is why the company’s share price is trading up where it is today.

AND with the PFS coming that will reveal more specific project economics, it should be easier for HVY to sell the next ~$2M tranche of its royalty deal to sophisticated royalties funds.

This assumption is based on sophisticated royalty buyers likely wanting to see more accurate projected revenues (in the PFS) to know exactly what the royalty will yield.

So again, HVY is going for its next batch of funding via a non-dilutive royalty sale, and we saw how well that worked for share price appreciation the first time around.

Based on the HVY’s share price appreciation, it appears the market now has faith in HVY to again avoid a dilutive cap raise...

We also note that HVY can draw down a “at the market” share sale facility as and when needed, at their own discretion, to give them breathing room while closing out the next tranche of the royalty agreement.

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

We are hoping HVY is able to raise the second $2M tranche of the royalty deal, keep their capital structure in tact and continue the upward share price move as their project progresses.

With a PFS due in the next few weeks, we think cash from the royalty deal could also buy HVY enough time to start delivering material share price moving catalysts...

Like offtakes, strategic partnerships, mining permits and the big one... project financing commitments...

Reminder: 13 Reasons why we are Invested in HVY:

It’s been a while since we wrote about our Investment in HVY - here is a reminder and update on the reasons we Invested:

These reasons were first published on 14th July 2023. We have put in a small update on some of the reasons we think have evolved since then:

1. Tiny market cap after lots of progress - When we initially Invested in HVY it was capped at just $6M with a scoping study already completed for its project.

Update: HVY is now capped at ~$16.5M and is a few weeks away from delivering its Pre Feasibility Study (PFS).

2. Tight structure low shares on issue (SOI) - When we initially Invested HVY had ~55 million shares and ~18 million options on issue. Prior to our Investment, the top 5 shareholders held ~75% of these shares

Update: HVY has managed to protect its capital structure extremely well. HVY still only has ~67.5M shares on issue.

3. Management skin in game - Before our Investment, HVY directors held ~11.6% of the company, with chairman Adam Schofield holding 7.7% himself.

Update: HVY directors now hold ~10% of the company, with CEO Adam Schofield holding ~6.2% himself.

4. Garnet is an important niche material - Garnet is leveraged to big industries like the maritime and aerospace industries to allow for rust removal, industrial cutting and anti-corrosive paint to be applied to surfaces. It cannot be easily replaced.

5. Favourable long-term pricing environment for garnet - Supply side is decreasing with Indian garnet production being banned. On the demand side bans are being considered for garnet alternatives (copper slag/silica) due to ESG concerns. We expect to see demand outstrip supply in the coming years leading to higher prices.

6. US is spending ~US$40BN on upgrading old rusty bridges - The US has budgeted US$40BN of new funding for bridge repair, replacement, and rehabilitation. We expect this to increase demand for garnet as a sandblasting product.

Update: This reason is a lot stronger now with the US Trump Administration singling out rusting old US navy ships as a big problem too...

7. Quick, viable pathway to becoming key garnet supplier - HVY’s project has an established JORC resource, a completed scoping study and is just about to start a pre-feasibility study. HVY is targeting first production in 2026.

8. Close proximity to two producing garnet projects - HVY’s projects sits next door to the GMA mine which supplies ~35% of the world’s almandine Garnet and Resource and Development Group’s newly constructed mine.

9. Neighbour RDG trading at a ~$220M enterprise value - Resource and Development Group next door is capped at ~$150M and has an enterprise value close to ~$220M. RDG is also ~65% owned by $13BN Mineral Resources.

Update: Ramp up difficulties and some bad press for HVY’s regional peer has seen its enterprise value come down slightly. RDG’s enterprise value is now ~$130M, which is still a lot higher than HVY’s $16.5M.

10. Project economics stack up, plenty of room for upside - HVY’s scoping study shows an after-tax project Net Present Value (NPV) of $253M, a payback period of 4.2 years, and an after tax Internal Rate of Return (IRR) of 33%. The project CAPEX is also relatively modest at $110M.

Update: We should get updated project economics in the coming weeks from HVY when the Pre Feasibility Study (PFS) drops.

11. Upside to increase garnet resource - HVY could double its existing JORC resource with more drilling to the north/south of its existing JORC resource and at its Red Hill project where it has a 90-150Mt (4.1 to 5.4% THM) exploration target.

12. Project financing support from Dutch Export Credit Agency - HVY recently received a “Letter of Support” for project funding from Atradius - the Dutch Export Credit Agency.

13. ESG focus and Australian project attractive to European/US garnet buyers - Western companies are seeking sustainably produced materials, which will increase interest in sustainable produced garnet, especially given the cloud surrounding garnet that was previously produced in India

Ultimately, we hope that the above reasons combine to deliver our Big Bet which is as follows:

Our “Big Bet” for HVY

“We want to see 20x return as HVY moves into production by 2026 and become a profitable garnet mine”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done and many risks involved - some of which we list below. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

HVY’s project is next door to the world’s biggest garnet mine:

HVY’s project sits right next to two operating garnet mines.

Including the world’s biggest owned by a private group - GMA Garnet.

GMA (world’s largest garnet producer) was recently sold to Singapore based Jebsen & Jessen group for an undisclosed amount.

However, it was reported by The Australian that the previous owners wanted around $500M when it was up for sale (source).

The other large garnet producer in the region is Resource Development Group, which is majority owned by $5BN Mineral Resources Group.

Resource Development Group is ramping up its project right now and trades with an enterprise value of ~$130M.

Compared to these two, HVY’s current Enterprise Value is ~$16.5M.

Here is where those three companies sit on the “mining lifecycle” chart:

As HVY moves out of the feasibility stage and into development/production we are hoping the valuation gap between the company and the bigger players in the area can close.

Especially considering the A$253M NPV HVY’s project has.

What’s next for HVY?

🔄 Complete Pre Feasibility Study (PFS)

In the most recent quarterly, HVY said that the PFS should be out in “late May/early June”.

We are looking forward to the PFS coming out, mainly because it will give potential offtake partners and project financiers more certainty around the cost estimates/timelines of HVY’s project.

We also think it gives HVY a chance to show the market its project economics are strong based on studies with a higher level of detail.

HVY’s 2022 scoping study has already shown:

• An after-tax project Net Present Value (NPV) of $253M
• A payback period of 4.2 years,
• An after tax Internal Rate of Return (IRR) of 33%
• And a relatively modest project CAPEX of $110M

Since then HVY has mentioned there is potential for a “significant reduction” in it’s projects CAPEX by using an alternate mineral processing plant.

Lower CAPEX should mean better overall economics... which we hope makes HVY’s project more financeable...

As mentioned earlier, once of the director performance options vesting conditions is to see the NPV/CAPEX ratio go above 2.5 when the PFS comes out.

Based on the scoping study numbers, the ratio is currently at ~2.3x.

We are hoping the alternate processing plant designs are enough to get that ratio above 2.5x which again will highlight the strength of HVY’s project economics.

Higher NPV for less CAPEX is a big win when it comes to study results... it means far less upfront investment is required to make a larger return in the long run.

(Source)

🔄 Mining Lease Application

HVY also mentioned in its recent quarterly that its mining lease application was being prepared for lodgement this quarter.

What could go wrong?

One of the most significant risks for HVY is “development/delay risk”.

While HVY is making substantial progress with its PFS and Mining Lease application, delays in these processes can push back the project's timeline.

Development delay risk

Development studies such as pre feasibility studies and bankable feasibility studies can take longer than expected and any delay here could hurt the pace of HVY’s newsflow and sentiment around the company.

Source: HVY Investment Memo, June 2023. What could go wrong?

Another risk HVY is facing is financing risk.

As a small cap exploration and development company, HVY doesn’t earn any revenue and therefore relies on the market to raise capital and advance its projects.

As of 30th March 2025 the company had $39k in the bank, which means that the company will need to secure funding in the near term in order to progress the development of its projects.

As mentioned earlier in today's note, HVY is currently raising funds through the second tranche of its royalty funding deal.

We also know that HVY has an “At-The-Market” (ATM) facility, where HVY can raise small amounts of capital at its discretion, giving it breathing room to lock in funding from the royalty deal.

Funding Risk

The small cap funding environment is particularly difficult, and it is possible that HVY cannot secure the funding it needs through royalty agreements or otherwise to continue its operations.

Small caps need money to grow, and capital raises are often needed, which can cause dilution to shareholders and these raises can be conducted at a discount to market prices.

Source: HVY Investment Memo, June 2023. What could go wrong?

To see all the relevant risks to HVY read our HVY Investment Memo.

Our HVY Investment Memo

In our HVY Investment Memo you’ll find:

• HVY’s macro thematic
• Why we Invested in HVY
• Our HVY “Big Bet” - what we think the upside Investment case for HVY is
• The key objectives we want to see HVY achieve
• The key risks to our Investment thesis
• Our Investment Plan