HVY’s neighbour tipped for big sale

The neighbour of our mineral sands and garnet Investment, Heavy Minerals (ASX: HVY) is reportedly up for sale at a time when garnet demand is increasing and prices are rising.

An article in The Australian said “Investment bank Morgan Stanley is understood to have been hired for the sale of the $500m-odd industrial company GMA Garnet”.

Any potential sale price could be important for HVY.

This was the headline from The Australian on Tuesday 28 November:

(Source)

We think this potential sale could have big implications for how the market looks at HVY’s valuation as it progresses a PFS with the aim of entering production in 2026-2027.

Here is our key takeaway from the news that GMA is up for sale:

• GMA sale could provide a barometer for HVY’s potential upside - Morgan Stanley has been appointed for the sale of the “$500M odd” company which has EBITDA of $50-$100M. We think a sale price could set a benchmark for the value of a developed garnet project.

And below you can see the proximity of GMA’s operations to HVY’s project (right next to each other):

For context, garnet is an abrasive used to reduce corrosion (wear and tear on structures and surfaces) - which is used in the shipbuilding industry and on infrastructure projects.

We’re expecting demand for garnet to ramp up dramatically as the US seeks to fix up its rusty bridges and other infrastructure - recent US legislation includes a total of $40BN of new funding for bridge repair (source), replacement, and rehabilitation, which is the single largest dedicated bridge investment since the construction of the interstate highway system.

This includes US$2BN to fix some 30,000 steel bridges, including removal of rust - the key use of garnet (source).

With increasingly strong macro tailwinds for HVY, here’s what we’re looking for from the company going forward.

What’s next for HVY?

We think a key focus for HVY will be securing additional non-dilutive funding through its existing royalty funding agreement.

HVY will be looking to add to the $500K of funds it has already secured from this agreement - which will be used to pay for the Port Gregory pre-feasibility study (PFS).

This PFS will be a crucial part of HVY’s plan to reach a Final Investment Decision for what could be a globally significant garnet mine.

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