Sovereign Wealth Fund to invest US$10M in MNB… at a premium to current price

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 12,026,429 MNB shares and 4,141,429 MNB Options at the time of publishing this article. The Company has been engaged by MNB to share our commentary on the progress of our Investment in MNB over time.

It takes about 10 years to bring a new mine into production.

Once the exploration, resource definition, never ending scoping studies, permitting, processing plant designs, and financial modelling are completed, two key things remain:

1. Secure the funds to build the mine
2. Build the mine

Our 2022 Wise-Owl Pick of the Year, Minbos Resources (ASX:MNB) is currently at this stage with its phosphate project in Angola.

Once built, $61M capped MNB’s phosphate mine is forecast to deliver a US$55M in EBITDA per year (base case, on average) mine, over a 20 year mine life.

(which MNB says will be operational in 2025)

MNB has already spent US$12.5M to get the project built and into construction - and now needs a further US$24M.

Yesterday MNB announced a US$10M investment from Angolan Sovereign Wealth Fund at 8c/share...

... or the 10 day VWAP immediately prior to execution of definitive transaction documents.

Whichever share price is higher.

In either case, the Angolan Sovereign Wealth Fund is investing US$10M at a premium to MNB’s current share price.

Importantly, this investment is a key precondition to unlocking a FURTHER US$14M loan from IDC (Industrial Development Corporation of South Africa).

The Sovereign Wealth Fund commented that “this investment will strategically enhance our profitability prospects”

(we hope ours as well)

and that they “are enthusiastic about the project”

(so are we)

Now only two final pre-conditions remain to unlock the $14M development bank loan and MNB can be fully funded to build its mine and enter production:

• Finalise a US$10M term loan - MNB is well advanced with Banco BAI, one of Angola’s largest banks,
• Convert an existing offtake MoU into a formal offtake agreement.

Sort of like Thanos in The Avengers needing collect all the infinity stones to unlock the power of the universe:

MNB says these final two preconditions are very close to being achieved...

According to yesterday’s announcement both pre-conditions are expected to be met: “in the coming weeks”.

Which would mean MNB will be fully funded to complete construction of its mine and start delivering that ~US$55M per year of EBITDA...

So those infinity stones are coming together for MNB.

How does this deal fit into MNB’s project financing?

In October last year MNB signed an agreement with the Industrial Development Corporation (IDC) to provide a US$14M loan to construct its phosphate/fertiliser project.

This deal provided a number of “conditions precedent” - basically things that MNB needed to do first before they can access the US$14M.

Yesterday's US$10M investment from the Angolan Sovereign Wealth Fund satisfies one of those key conditions.

Here’s a summary of all the conditions precedent to unlocking the US$14M IDC loan:

1. 🔄 Project security - this one is a legal exercise where security over the project is organised. We see this as more of a formality.
2. ✅ Evidence of US$11M equity funding - according to yesterday’s announcement, the US$10M investment from the Sovereign Wealth Fund is enough to satisfy this precondition.
3. 🔄 Evidence of a US$10M term loan - MNB “well advanced” in a loan application process with Banco BAI (“BAI”), one of Angola’s largest banks. MNB expects to hear back from the bank “shortly”.
4. 🔄 Binding offtake agreement - MNB previously announced an MOU for offtake with Grupo Carrinho (we covered that news here). This needs to be converted to binding.

MNB now has one of these four conditions complete.

... and the one that we think would have been the hardest to pull off.

We are hoping that now that the Angolan sovereign wealth fund is on board, it creates momentum for the others to complete.

Anyone who has gone through a financing round for any type of project will know the first chunk of cash is often the hardest to raise...

Usually financiers get a lot more comfortable with a project when there is a pathway to closing a deal - in MNB’s case the pathway is now pretty clear.

The next deal we are hoping to see land will be the binding offtake agreement with Grupo Carrinho.

As we mentioned above, MNB already has an offtake MoU in place.

(we just need to see the MoU convert to a binding offtake... expected “in the coming weeks”)

We see the offtake as important because they are usually deal breakers for institutions like Banco BAI (BAI), the bank that MNB is in discussions with for a US$10M term loan.

Offtakes give lenders comfort about future revenues for a company/project and reduce the risk of their investment.

We think that once the offtake is done, the bank loan will become a formality...

AND then once those are done MNB will unlock the US$14M loan from the IDC.

Remember MNB only needed US$24M to finish mine and processing plant construction.

If all of these catalysts happen, MNB would have raised ~US$35M which is enough to get the project into production and some.

In yesterday’s announcement, MNB said that it expects the remaining conditions to be delivered over the coming weeks.

Here is our updated view on where MNB is with respect to the funding:

In a previous announcement MNB mentioned that they were also looking for equity funding from other funds / sources, in addition to the Angolan Sovereign Wealth Fund.

We see any additional cornerstone investment as a bonus to MNB’s activities and not on the critical pathway to production.

What does the funding unlock?

MNB has previously said that it can mobilise to site for construction of the plant within two weeks of securing the funding package.

That means that within two weeks of the final financing agreement being signed construction could start.

In 2023 we visited MNB’s project in Angola to tour the phosphate deposit and where the processing plant will be built.

On the Ground in Angola: Our MNB Site Visit

Long lead items and key processing equipment have already been purchased and are waiting in a warehouse for the earthworks to be completed so they can be transported and assembled on site.

We also saw key plant parts arriving in port (note that these photos are from early last year - February 2023):

Once construction starts, there are no lead times for all these parts and equipment.

(they were literally stored in a facility less than 15 minute drive from where the construction site was).

MNB’s processing plant is NOT a big complex set up, so we could see MNB make progress very quickly.

(MNB’s proposed plant - Source)

Where is MNB on the mining company lifecycle?

MNB is very close to production.

All going to plan, less than 12 months away.

MNB only trades at a market cap of $61M, despite being so close to production.

The reason is best explained by the famous Lassonde Curve, which is a model designed by Canadian mining executive Pierre Lassonde, that shows the typical share price cycle for mining exploration companies.

It outlines how mining company share prices tend to:

• rise sharply after an initial discovery, then
• decline during resource definition and feasibility studies before,
• rising again as the company moves into production.

The curve helps visualise the different stages a mining company goes through from exploration to production and how the share price reacts at each stage.

MNB’s project sits right at the second major inflection point on the Lassonde Curve.

That is the point where a company has finished feasibility studies but is going through the gruelling financing/project build stage.

That's where institutional/strategic investments are done (like yesterday) and the project gets completed.

As per the Lassonde Curve, usually that is when a company’s share price runs hard for a second time.

We are hoping that MNB’s project ramps up into production and the company’s share price follows the trajectory implied in the Lassonde curve.

Ultimately, constructing and producing from its phosphate project forms the basis for our Big Bet for MNB which is as follows:

Our MNB ‘Big Bet’:

“MNB delivers a 10x return by building a profitable phosphate project AND progressing its green ammonia project to construction phase.”

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 MNB Investment Memo . Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

What’s next for MNB’s Fertiliser Project?

The goal is for MNB to commence construction on its mine and processing plant in the next month or so.

In order for that to happen it will need to secure US$24M in funding.

Of this US$14M will come in the form of a loan by the International Development Corporation (IDC).

The remaining US$10M has been secured from the Angolan Sovereign Fund.

MNB will also need a working capital facility of at least US$10M via a term loan which will come from local banks within Angola.

The pathway to construction is clear, it is now about whether MNB can execute on these deals so construction can commence as quickly as possible.

🔲 Complete Funding US$24M

• ✅ Raise of US$10M from Angolan Sovereign Wealth Fund
• 🔄 Secure a US$10M term loan with Angolan Bank
• 🔄 Convert Grupo Carrinho MoU into a signed offtake agreement
• 🔄 Finalise US$14M loan with the IDC

🔲 Commence Construction

According to an interview that Lindsay Reed did with Crux Investor, MNB will use a Portuguese group to undertake the construction of its flagship fertiliser plant.

Although no contract has been signed, Lindsay is confident that the team can “be mobilised within two weeks” to commence construction, once the funding has been secured.

Once all of the funding is in place, construction can start straight after.

🔲 First production from phosphate fertiliser project

MNB is targeting first production in Q2 2025 in order to ensure Grupo Carrinho has the majority of its product requirements for the 2025/26 growing season.

Ultimately we hope that as MNB ticks off these catalysts and brings its project into production, the company’s share price re-rates higher as per our Big Bet which is as follows:

What are the short term risks to MNB?

Phosphate / Fertiliser Project

For MNB’s phosphate/fertiliser project, the short term risks are “project financing risk” and “delay risk”.

MNB has a relatively small CAPEX funding gap that needs to be filled and so will need to try and secure additional funding to complete construction works and get its project into production.

There is a risk that the final funding package takes longer than expected to finalise OR it isn't secured at all, which forces MNB to pivot in its development strategy.

Any delays from a funding perspective could impact the time it takes for MNB to get to first production (and revenues) from the project.

Delays with construction could also further hurt the MNB share price. MNB has faced delays before and the market may punish MNB if further delays happen.

Our MNB Investment Memo

Our Investment Memo provides a short, high-level summary of our reasons for Investing. We use this memo to track the progress of all our Investments over time.

Below is our MNB Investment Memo , where you can find the following:

• What does MNB do?
• The macro theme for MNB
• Our MNB Big Bet
• What we want to see MNB achieve
• Why we are Invested in MNB
• The key risks to our Investment Thesis
• Our Investment Plan