fbpx

Written by 08:00 Analys, Research

GRANGEX: Anglo American-deal provides significant validation and financing for ambitious growth plan

GRÄNGESBERG EXPLORATION After the DFS for Dannemora in Dec 2022 showing an IRR of 27% after tax, GRANGEX has now signed a two-fold deal with global mining giant Anglo American. The deal includes a binding term sheet for an Offtake Agreement for Dannemora’s high-grade (68%) low carbon footprint iron ore concentrate worth SEK 15bn (at today’s price) over 11 years and a USD 10m upfront Royalty Agreement. This provides both a significant validation and immediate capital injection, effectively lowering the risk and thereby our discount rate. With an extended production period (11y), strong USD and revised cost and financing structure (taking plans for a larger financing into account), we now find support for a risk-adjusted fair value of SEK 72-94 per share in 12-24m.

Johan Widmark | 2023-03-08 08:00 

This commissioned research report is for informational purposes only and is to be considered marketing communication. This research report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and Emergers is not subject to any prohibition on dealing ahead of the dissemination of investment research. This research does not constitute investment advice and is not a solicitation to buy shares. For more information, please refer to disclaimer.  
 
Offtake and royalty deal with Anglo American

Through its wholly owned subsidiary Dannemora Iron AB, GRANGEX has secured a binding term sheet for an offtake agreement for the planned production of low carbon high-grade iron ore concentrate. With an estimated production period of 11 years and estimated production of 1.0Mt iron ore per year, the deal is worth around SEK 15bn, based on today’s price level. The deal also includes a royalty agreement giving GRANGEX USD 10m upfront (next week) in exchange for a 2% royalty for the future revenues from Dannemora. This effectively secures a material portion of the pre-construction financing for the restart of the Dannemora mine, while also providing a significant stamp of approval to the feasibility of the project.

Strong case for low CO2 iron ore

GRANGEX has now entered the next phase, the construction phase, in producing a world class product with a minimal carbon footprint at Dannemora. It is worth noting that the DFS presented in December 2022 was based on recent quotations and price lists and thereby captured the high inflation during 2022 resulting in SEK 700m higher initial CAPEX (SEK 1.2bn to SEK 1.9bn) as well as 22% higher maintenance CAPEX and OPEX (55 USD/t) compared to the PFS, although this was counteracted by a 17% stronger USD/SEK-rate.

Mix of equity and debt

As the offtake agreement and royalty deal with Anglo American has markedly lowered both the operational and the financial risk in Dannemora, we now apply a 13% (15%) return requirement for equity investors, while maintaining an 8% interest for debt holders, netting a 7.4% WACC in our unlevered DCF approach.

Now we expect the company to raise around SEK 300m from equity investors later this year, along with SEK 1.5bn in a mix of co-investments from strategic investors, project financing and secured debt, most likely involving additional capital from Anglo American. At this point however, it is still difficult to forecast what the final structure will look like, but it will likely affect the Levered Equity Value for GRANGEX’s current shareholders. All in all, we still find support for an Unlevered Net Present Value largely in line with the NPV presented in the company’s DFS.

Significant potential for further revaluation

With a structural long-term growth in demand for green low CO2 iron ore and a prolonged supply crisis following Russia’s cut off from Europe we find a strong fundamental case for both GRANGEX’ projects. We now expect production start for the Apatite project sometime early/mid 2024, Final Investment Decision for Dannemora around winter 2023/24 and production start in H1’25.

We now find support for an Unlevered NPV for Dannemora of SEK 2.3bn after tax. Along with the Apatite project and Sala Bly, and reduced for project financing, this Unlevered approach gives a SEK 955m in Equity Value attributable to current shareholders. Applying a Levered DCF after tax approach, applying only the Cost of Equity (13%) as discount rate, this gives SEK 974m attributable to current shareholders. Using the midpoint of these two numbers and risk adjusted with an estimated probability of successfully of 65-85%, this provides support for a fair value of around SEK 630-820m or SEK 72-94 per share in 12-24m.

DISCLAIMER

This commissioned research report is for informational purposes only and is to be considered marketing communication. This research does not constitute investment advice and is not a solicitation to buy shares. Information provided here or on Emergers’ website emergers.se is not intended to be financial advice. This research shall not be construed as a recommendation or solicitation to invest in the companies described. Emergers cannot be held liable for either direct or indirect damages caused by decisions made on the basis of information in this analysis. Investors are encouraged to seek additional information as well as consult a financial advisor prior to any investment decision.

This material is not intended to be financial advice. This material has been commissioned by the Company in question and prepared and issued by Emergers, in consideration of a fee payable by the Company. Emergers charges a standard fee for the production and broad dissemination of a detailed note following by regular update notes. Fees are paid upfront in cash without recourse. Emergers may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained herein represent those of the research analyst at Emergers at the time of publication. The company has been given the opportunity to influence factual statements before publication, but forecasts, conclusions and valuation reasoning are Emergers’ own. Forward-looking information or statements contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Emergers shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained in this material.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Emergers’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in this material may not be eligible for sale in all jurisdictions or to certain categories of investors. Investors are encouraged to seek additional information as well as consult a financial advisor prior to any investment decision.

Investment in securities mentioned: Emergers has a restrictive policy relating to personal dealing and conflicts of interest. Emergers does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Emergers may have a position in any or related securities mentioned in this report, subject to Emergers’ policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Incirrata AB (Emergers)

United Kingdom
This document is prepared and provided by Emergers for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ”FPO”) (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States
Emergers relies upon the ”publishers’ exclusion” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Emergers does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Read Less Read More

For new research on growth stocks, sign up to our newsletter