President visits GEN’s green iron project - offers support and encourages rapid mine development. First production mid 2025?

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 3,750,000 GEN shares and 1,250,000 GEN Options at the time of publishing this article. The Company has been engaged by GEN to share our commentary on the progress of our Investment in GEN over time.

A presidential project name drop.

An in-person site visit from the president who is offering “full support” and encouraging rapid development.

(And government pledges of financial support to the region)

A state visit by the president to China to solidify business ties between two countries...?

And a newly appointed director that was CEO of $66BN capped Fortescue (yes, the massive Aussie iron ore producer) for 4 years between 2017 and 2021.

Our green iron ore Investment Genmin (ASX:GEN) reckons they will be built and producing green iron ore by mid-2025 next year...

GEN owns 100% of a construction-ready green iron ore project in Gabon.

Green iron ore - to go into green steel.

Green Steel is one of the biggest macro thematics we expect to shine over the next 5-10 years.

Steel production makes up 6-9% of the world's carbon emissions and steel is used in just about everything we make.

Our way of gaining exposure to this thematic is through GEN, who says they are on schedule to complete mine construction and start production by mid 2025:

( Source: GEN Presentation February 2024 )

We Invested in GEN at 10c back in April of this year, and GEN is now trading at 14c

GEN’s project already has in place:

• an ore reserve,
• mining permit,
• environmental permitting,
• a feasibility study
• a clean energy supply via a hydro-electricity deal to cleanly process its ore to green grade.
• AND 4x different offtake MOU’s with some of China’s biggest steel manufacturers.

We think the next major catalyst is project financing to get GEN’s project into development.

We aren’t the only ones who want to see GEN’s mine start producing as quickly as possible.

Yesterday GEN released an announcement summarising Gabon’s President visiting GEN’s project site and his support to get GEN’s project up and running as quickly as possible:

( Source )

This was a quote from the President regarding GEN’s project:

“We are investing in concrete projects that will improve the quality of life of our fellow citizens and strengthen the regional economy... the Baniaka mine is an essential lever for job creation and sustainable development in our region. ”

The President also pledged ~$17.5M in new support to the region around the mine to build road, education and health infrastructure.

( Source - Note: translated content)

And according to this media report, one of the President of Gabon’s next stops will be China.

( Source - Note: translated content)

The news article reckons the purpose of the meetings will be to meet with China’s President Xi Jinping, to strengthen business ties between the two countries.

GEN already has 4 x Chinese offtakers - GEN has four offtake MoUs for future production in place, three of which are in the top 15 biggest steelmakers in the world. These four non-binding offtake MoUs cover ~18mt over GEN’s first three years of production — effectively all of its production during that period.

When it comes to financing GEN’s focus is on leveraging its four Chinese offtake MoU partners to put together a financing solution for its project.

( Source )

The China-Gabon leadership meetings will take place between September 2-6 of this year.

Given GEN’s project has four pre-existing offtake MoUs with major Chinese steel producers - we hope that GEN’s project might be a topic of discussion during the summit.

Below is a list of these major Chinese steel producers - all of whom have an offtake MoU with GEN for production from GEN’s future mine in Gabon:

( Source )

In our opinion the next major catalysts for GEN are financing deals to get its project into construction.

In their latest investor deck GEN said they wanted financing closed by around Q2 2024, so we are hoping to see an update on this very soon.

Back in May, Foster Stockbroking analyst Mark Fichera upgraded the GEN price target to 61c from 49c - you can read the full GEN analyst report here . Fosters was the lead manager on the 10c recapitalisation raise.

( Source )

Whilst that price target looks pretty good, it's worth noting that analyst price targets are based on a number of assumptions that may not eventuate. Never invest on a price target alone, do your own due diligence before making an investment.

We also note that the price target assumes GEN is able to lock in project financing and get its project into production...

We infer from the new GEN board changes announced this month that construction could be starting very soon, given that the two new board additions are both specialists in construction and operation of iron ore mines (more on this in a second).

We think project financing will unlock any future re-rates & help GEN achieve our Big Bet which is as follows:

Our GEN Big Bet:

“GEN re-rates 1,000% by scaling up its production over time from its iron ore project in Gabon”

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, many risks involved - just some of which we list in our GEN Investment Memo . Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true

Gen management team shuffle in anticipation of mine construction

Another sign that GEN is getting close to mine construction is the board and management changes two weeks ago.

Getting a resource project through feasibility study stages and financing takes a specific skill set...

As does smoothly delivering a construction project and operating a mine.

Long time GEN CEO and managing director Joe Ariti has moved into a Non-Executive Director role and will soon move into the Chairman role (by end of 2024).

We expect to see Joe working hard to bring home the financing package and maintaining key in-country relationships.

We expect he will play a crucial role in ensuring continuity of relationships between GEN, Gabonese officials and the group of Chinese offtakers that GEN currently has MoUs with.

We are inferring that mine construction could be starting soon, given the new team members that have been added by GEN this month.

Both of them have strong experience in building and operating iron ore mines.

Andrew Haslam was brought in as interim CEO - Andrew was previously a director of BC Iron and executive general manager for iron ore at Mineral Resources.

Greg Lilleyman is also entering the fray as a non-executive director. ( Source )

We think Lilleyman is exceptionally well suited to the next phase of GEN’s trajectory.

Lilleyman was CEO of $66BN capped Fortescue (yes, the massive Aussie iron ore producer) for 4 years between 2017 and 2021.

We take it as a serious positive sign for GEN's project and the likelihood that the mine will be built, convincing someone of Lilleyman's calibre to join.

Welcome aboard the good ship GEN Greg & Andrew:

( Source )

GEN has guided the market that they are assembling a list of highly credentialed candidates, and will appoint a new permanent CEO in Q4 2024.

The market seems to like the calibre of the new board appointments too...

We note that since the appointment of Lilleyman and Haslam, the GEN share price has been moving, up from 11.5c on July 11 when the appointment was made to now trade at ~14.5c today:

We Invested at 10c in a “recapitalisation” round that was completed in early April:

In short, we think things are looking good for GEN right now, with more experience added to the Board (specifically in production) and growing political momentum in Gabon to make the mine a reality.

Now we just need to see that financing secured to build the mine...

How does this news impact our GEN Investment Memo?

Offtake with Hunan, the early backers of FMG
Hunan Valin Steel was one of the early backers of FMG back in 2009 with a >$500M direct investment into FMG. Hunan’s stake in FMG is worth about ~$6.7BN. Hunan currently has an offtake MOU in place with GEN.

Source: “Why we Invested” section - GEN Investment Memo 2 April 2024

Given Hunan is currently a major shareholder of FMG, we expect new GEN CEO Greg Lilleyman to be familiar with one of GEN’s 4 offtake MoU partners.

Objective #2: Convert Offtake MoUs to Binding Contracts
Milestones
🔲Binding offtake #1
🔲Binding offtake #2

Source: “What do we expect GEN to deliver” section - GEN Investment Memo 2 April 2024

We’re hoping GEN relationships with Hunan will help drive GEN forward towards a binding offtake with Hunan and GEN’s other offtake partners.

Jurisdiction / Political
In August 2023, a military coup affecting regime change occurred in Gabon.

A transitional, appointed rather than elected, government has been put in place with elections scheduled to be conducted in August 2025.

While the population of Gabon has generally supported the coup - there are uncertainties about the future political climate of Gabon.

For example, delays in holding elections and returning to an elected civilian government may lead to economic, political, and social risks materialising that adversely impact GEN’s ability to develop Baniaka and subsequently produce, export and sell iron ore products.

Source: “What could go wrong” section - GEN Investment Memo 2 April 2024

The news this week was that GEN has the support of Gabon’s new President.

This helps mitigate one of the biggest risks highlighted in our investment memo: Jurisdictional Risk.

Just last year a peaceful military coup instigated a regime change in Gabon which created uncertainty for GEN’s project.

However, it appears that GEN has progressed well in terms of securing the support of the new government.

Reminder: The 13 Key reasons why we Invested in GEN:

• Green steel - Steel production accounts for ~6-9% of global carbon emissions and as an industry, is one of the single biggest polluters in the world. “Green steel” is the industry's response to decarbonisation which means demand for green iron ore, like GEN’s, will increase in the future.
• Mine built and producing in next 12-18 months - GEN is aiming to have its project in production and generating cashflows within 18 months.
• Ready to build - all permits in place - In January 2024, GEN received a 20 year, large scale mining permit in Gabon, which provides certainty of tenure at the project. From our experience Investing in Africa, this is a big step forward for any company to take.
• Access to existing infrastructure - GEN has already negotiated 1) a 20 year agreement for green hydroelectric power, and 2) an integrated port and rail logistics solution that will take GEN’s products along the Trans-Gabon Railway to Port Owendo on the west coast of Gabon.
• China push to use green steel - The Chinese government is proposing to become carbon neutral by 2060. To do that the government is looking to decarbonise the industries that are generating the most pollution. Currently steel production accounts for ~15% of all carbon emissions in China - driving the government's desire to push for the growth of a green steel industry.
• GEN already has 4 x Chinese offtakers - GEN has four offtake MoUs for future production in place, three of which are in the top 15 biggest steelmakers in the world. These four non-binding offtake MoUs cover ~18mt over GEN’s first three years of production — effectively all of its production during that period.
• Offtake with Hunan, the early backers of FMG - Hunan Valin Steel was one of the early backers of FMG back in 2009 with a >$500M direct investment into FMG. Hunan’s stake in FMG is worth about ~$6.7BN. Hunan currently has an offtake MOU in place with GEN.
• $76BN FMG just produced iron ore in Gabon - Back in December 2023, FMG shipped its first batch of iron ore from a pilot operation at its first overseas mine in Gabon.
• Tembo Capital owns 50% of GEN - Private equity mining specialist fund Tembo Capital is GEN’s biggest shareholder. Tembo was the same group that led the recapitalization of Paladin Energy out of administration before relisting the company. Paladin now trades at a market cap of ~$4.1BN. Tembo’s Managing Director John Hodder (and also GEN board member) invested $1.65M in GEN’s placement at 10c per share
• GEN just went through its own recapitalisation - GEN just raised $13.2M via a placement at 10c per share and ~$10.5M from an entitlement offer. Tembo Capital took up ~$8.3M in that entitlement offer through cash and loan conversions.
• US$391M NPV with just US$200M in CAPEX - GEN has a pre feasibility study completed showing a Net Present Value of US$391M, Internal Rate of Return of 38% and payback period of just 2.7 years. To get the project into production, GEN needs US$200M in CAPEX.
• Potential to 4x iron ore production to 20mtpa - GEN’s development strategy is to get the mine into production through a 5mtpa starter mine. GEN also has the capacity to increase the mine capacity to ~20mtpa.
• Similar initial start up to $3.7BN Champion Iron - Champion Iron’s project was initially producing at ~6mtpa between 2011-2014 before being ramped up to a ~15mtpa operation. By the end of the scale up Champion’s share price went up by ~3,800%. GEN’s plan is to start at 5mtpa and ramp up to 20mtpa over time.

You can read our full launch note on GEN here

What’s next for GEN?

Project financing update (US$200M CAPEX financing)

We want to see GEN show a pathway to getting its project financed and into construction.

Milestones

🔲 Confirm funding strategy

🔲 Secure debt financing

🔲 Secure equity financing

🔲 Secure binding offtake agreements

🔲 Secure prepayments for offtake or other strategic capital partners.

Find Project Build CEO

With Joe Ariti moving into the Non-executive Director position we want to see GEN secure a high profile CEO that has experience building out large mining projects.

Convert offtake MoU’s into binding agreements

In the near term we are looking for GEN to make progress across its offtake MoUs.

With 4 MoUs for offtake already secured, we think GEN will be looking to make these offtakes binding and in doing so, firm up the financing picture.

We expect there would be some competitive tension around GEN’s premium product - and things could move quickly once any of these 4 MoUs are converted into a binding agreement.

Milestones

🔄 Binding offtake #1

🔄 Binding offtake #2

What are the risks?

We’re particularly focussed on these two risks at the moment:

Financing and delay risk
The development of Baniaka will require ~US$270M in debt and equity funding (a number that estimates on CAPEX working capital and corporate expenses), to be raised in financial markets.

Financial markets are inherently uncertain and readily influenced by global macro-economic events at the time.

GEN may experience delays in procuring the funding and consequently development of Baniaka through exposure to the sentiment in financial markets, which may adversely affect GEN’s value and share price.

Source: What could go wrong? GEN Investment Memo 2nd April 2024

We think GEN may be currently running slightly behind schedule, with the timeline for mine construction shifting from H1 2025 to “mid-2025”. ( H1 2025 Source = February Presentation, slide 5 ) ( Mid-2025 Source = 2024 Annual Report commentary, page 12 )

To catch up, GEN will need to announce progress on project financing in the next couple of months to stick to the goal stated in their 2024 Annual Report of “project financing closing on or around mid-2024 to enable the build to commence”. ( Source )

Infrastructure access risk
The success of Baniaka (GEN’s primary project) will require initial and ongoing access to, and available capacity on, the Trans-Gabon Railway and at the Owendo Mineral Port.

GEN has signed a long-term, conditional 15-year bulk logistics agreement with Owendo Mineral Port for the provision of rail and port services utilising existing and operating rail and port infrastructure.

There is no guarantee that GEN and Owendo Mineral Port will be able to fulfil the conditions precedent to this agreement in a timely manner, and therefore there is no guarantee that this agreement will come into effect, potentially having an adverse impact on the value of GEN and its share price

Source: What could go wrong? GEN Investment Memo 2nd April 2024

With the transitional president announcing material financial support to build infrastructure in the region that GEN operates in, we see infrastructure access risk as reduced. We hope for future government announcements on infrastructure in GEN’s region to further reduce this risk.

Jurisdiction risk/political risk
In August 2023, a military coup affecting regime change occurred in Gabon.

A transitional, appointed rather than elected, government has been put in place with elections scheduled to be conducted in August 2025.

While the population of Gabon has generally supported the coup - there are uncertainties about the future political climate of Gabon.

For example, delays in holding elections and returning to an elected civilian government may lead to economic, political, and social risks materialising that adversely impact GEN’s ability to develop Baniaka and subsequently produce, export and sell iron ore products.

Source: What could go wrong? GEN Investment Memo 2nd April 2024

We see jurisdictional and political risk reducing in the wake of the indication that the Gabonese transitional government appears firmly behind GEN’s Baniaka project as a key pillar of their economic agenda.

Check out our GEN Investment Memo to see more risks to our Investment Thesis.

Our GEN Investment Memo

In our GEN Investment Memo , you can find:

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