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Equity Research | GRANGEX: Anglo American deal marks crucial step in transforming GRANGEX into leader in sustainable iron ore
Prenumeration
Hours before the Christmas weekend, GRANGEX announced a Royalty and off-take agreement with Anglo American of USD 5m + 12.5m for the part-funding and development of the Sydvaranger Mine, along with a rights issue of SEK 81m. This is an important step forward for the venture into Sydvaranger, as evidenced by the 23% surge in the share price on the news. The capital injection will cover the first installment for Sydvaranger of USD 20m due on March 31st, 2024, but GRANGEX will need to raise additional capital to meet the price tag of USD 33m and the subsequent development expenses. While the case in Dannemora already offers good potential for shareholders, we await the updated Feasibility study to include Sydvaranger into our NPV, but note that the first data points from Sydvaranger indicate an even greater potential than in the previous DFS (i.e. an NPV well above USD 550m) when raising the output from blast furnace concentrate to direct reduction iron ore, and accounting for significantly higher iron ore prices. Interestingly, the separate funding of subsidiary Sydvaranger will provide a fresh data point on valuation of Sydvaranger already in Q1’24, most likely exceeding parent company GRANGEX’ current market cap of SEK 200m.
Teaming up with Anglo American for another deal
Following the announcement of the acquisition of Sydvaranger Mining AS, GRANGEX has now entered a Royalty Agreement with Anglo American, securing part-funding for this acquisition and future operations in which Anglo American will provide USD 17.5m in exchange for a life-of-mine off-take and royalty of 3% of the production from Sydvaranger. This is however conditional upon the subsidiary Grangex Sydvaranger securing an equivalent amount of financing by 31 March 2024, which will be done in a separate raise to strategic investors during Q1’24 (which will then provide a valuation of GRANGEX’ holding in Sydvaranger). The deal also covers a future USD 50m contribution at yet unspecified conditions, for the restart of Sydvaranger. This partnership significantly reduces risks for GRANGEX and supports its strategy to supply ultra-high-grade magnetite concentrate for 'green steel' sectors in Europe and globally. An updated Feasibility Study will be completed within 12 months post-acquisition, which will also define a sustainable tailings disposal method acceptable to both parties.
Summary of the rights issue
The announced rights issue of SEK 81.2m (5.8m shares) has a subscription price of SEK 14 per share. The issue is backed by senior executives and main shareholders with SEK 11m, and external guarantors with SEK 50m, covering 75% of the issue. Proceeds will be aimed at financing the Sydvaranger mine purchase/operation after repayment of a SEK 20m bridge financing. Subscription period runs from 5 to 19 February 2024. Complete terms will be published in a prospectus on 2 February 2024.
Several milestones for investors to look forward to
After the short-term financing round to be concluded in February we now look forward to:
· The separate funding of Sydvaranger in Q1’24 which will provide a valuation of GRANGEX’ holding
· updated DFS and commencement of drainage of Dannemora in Q1’24
· the major capital raise slated for 2024
· updated DFS for Sydvaranger later in 2024
· Production start in Dannemora in H2’25
· Final Investment Decision for Sydvaranger in H1’26
Read the full report here: https://www.emergers.se/grangex_23r/