GEN gets a visit from the Minister of Mines, Mining convention to come
Yesterday something got our attention - our green iron ore Investment, Genmin (ASX: GEN) put out the following post on LinkedIn:
(The Minister of Mines, Giles Nembe, was on site at GEN’s project)
(Source)
The main thing that stood out to us was the commentary about the project’s “Mining Convention”.
Mining Conventions are important documents, particularly for companies like GEN which are pursuing major mining projects in Africa.
While the immediate benefit of a signed Mining Convention is a more stable foundation for stakeholders in the project - the secondary benefit we think is with regards to financing and offtake.
With a signed Mining Convention, financiers could be far more willing to open up the chequebook for GEN as it means greater surety around GEN’s status in Gabon.
We’ve long seen GEN’s future success tied to both financing and offtake which are closely linked.
GEN already has 4x 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 )
We think a signed Mining Convention could be a major catalyst for GEN, particularly in light of our recent experience Investing with another African mine developer - Canyon Resources (ASX: CAY).
Like in Gabon with GEN, Canyon Investors such as ourselves had to wait patiently for CAY to sign a Mining Convention with the Cameroon government.
But once the ball started rolling, and in a strong macro environment, this is what happened to the CAY share price.
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.
From July of last year onwards, CAY’s share price then tacked up a rise of more than 300% in the next six months as CAY started knocking down development milestones in a red hot bauxite market.
Now granted, the macro environment for iron ore is not necessarily setting the world alight right now.
And Canyon has been lucky enough to have a major cornerstone investor backing the company.
But commodity markets are fickle, and GEN’s green iron ore, as a premium product, could be seen as far more desirable in the coming quarters.
Particularly once GEN’s Mining Convention is signed.
Hopefully new CEO Andrew Taplin can lead the charge - read more about that appointment below:
Here’s what we’re looking for from GEN on the financing side of things for GEN.
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.
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
Read more about what we expect next from GEN in our most recent note:
President visits GEN’s green iron project - offers support and encourages rapid mine development.
