Thank you for the great report, particularly the calculation of potential synergies. The only aspect where I would be a bit cautious is opex and capex for FY 2027. Opex was already at the high end of their guidance range in FY 2026 (i.e. AUD 315m), and with higher diesel and other costs, we should most likely look at the top end of their FY 2027 indication (i.e. AUD 330m) or probably even a bit higher. Likewise, some capex seems to have been postponed in FY 2027, particularly the ball mill, so my hunch would be to look for the high end of capex as well (i.e. AUD 100m to AUD 110m). Looking at the cash bridge in their presentation (page 14), the AUD 53m operating cash flow resulted in a paltry AUD 13m FCF. However, you should read the fine print — adding back the AUD 8m royalty buyback already gets the quarterly FCF to AUD 21m. Based on normalised working capital, that increases to AUD 27m (or AUD 108m annualised, implying more than a 30% yield). So I clearly agree with the conclusion that this stock should be able to double.
Good points. I think there is a few things you need to adjust to the cash flow this quarter to get a better indication of future run rate…
1. One off payment to buyback royalty you mention - A$8m
2. One off cost to extinguish the hedge book (6koz Au @ A$4,600/oz and 2,400t Zn @ A$4,350/t) - A$8m
3. Working capital build (receivables) - A$6m
4. Inventory build - where the cost to mine the 43kt rock were incurred and paid but the revenue not received for this rock.. at A$400/t NSR.. this could be worth something closer to A$15m… this
I agree with the points you make on FY27 opex and capex. But don’t forget they should also be selling at least partially that >100kt stockpile they have built up.. which should bring in added revenue.
Good points, they can most likely offset these higher opex and capex. I just hope that the market doesn't take it the wrong way, if their 2027 opex and capex guidance is above their indications more than 12 months ago.
Great summary especially around the obvious attractiveness of M&A with CSA mine - as the synergies are so obvious does this actually delay this or make it harder to get done as there are limited other parties that would have interest/synergies - similar to maybe Genesis and Vault - does this need an ‘interloper’ to get involved to make this happen and if so who would it be?
Yeah there’s no other operations with the synergies that CSA has.. but this is cheap enough without synergies in my mind (1x 28’ EBITDA).. so if Harmony wait for that cash flow inflection (which has already begun) they will be forced to pay more. I think someone like Bill Beaments DVP could make sense as an interloper. Woodlawn a similar operation in NSW.. and Sulphur Springs very much of the same ilk (small UG polymetallic). A lot of synergies there and Bill can use his inflated scrip which is something Harmony cannot. He’s also got the network of underground operators in Aus.
Funny you mention Develop - that’s exactly who I was thinking might actually be an ‘interloper’ or have some interest in terms of alignment for the commodities and also workforce and gear flexibility etc. Polymetals probably too small/not yet with the runs on the board operationally etc. companies operating broken hill assets too far away for any real synergies you’d think
Thank you for the great report, particularly the calculation of potential synergies. The only aspect where I would be a bit cautious is opex and capex for FY 2027. Opex was already at the high end of their guidance range in FY 2026 (i.e. AUD 315m), and with higher diesel and other costs, we should most likely look at the top end of their FY 2027 indication (i.e. AUD 330m) or probably even a bit higher. Likewise, some capex seems to have been postponed in FY 2027, particularly the ball mill, so my hunch would be to look for the high end of capex as well (i.e. AUD 100m to AUD 110m). Looking at the cash bridge in their presentation (page 14), the AUD 53m operating cash flow resulted in a paltry AUD 13m FCF. However, you should read the fine print — adding back the AUD 8m royalty buyback already gets the quarterly FCF to AUD 21m. Based on normalised working capital, that increases to AUD 27m (or AUD 108m annualised, implying more than a 30% yield). So I clearly agree with the conclusion that this stock should be able to double.
Good points. I think there is a few things you need to adjust to the cash flow this quarter to get a better indication of future run rate…
1. One off payment to buyback royalty you mention - A$8m
2. One off cost to extinguish the hedge book (6koz Au @ A$4,600/oz and 2,400t Zn @ A$4,350/t) - A$8m
3. Working capital build (receivables) - A$6m
4. Inventory build - where the cost to mine the 43kt rock were incurred and paid but the revenue not received for this rock.. at A$400/t NSR.. this could be worth something closer to A$15m… this
I agree with the points you make on FY27 opex and capex. But don’t forget they should also be selling at least partially that >100kt stockpile they have built up.. which should bring in added revenue.
Good points, they can most likely offset these higher opex and capex. I just hope that the market doesn't take it the wrong way, if their 2027 opex and capex guidance is above their indications more than 12 months ago.
Yeah that's a banger. Great research throughout.
Great summary especially around the obvious attractiveness of M&A with CSA mine - as the synergies are so obvious does this actually delay this or make it harder to get done as there are limited other parties that would have interest/synergies - similar to maybe Genesis and Vault - does this need an ‘interloper’ to get involved to make this happen and if so who would it be?
Yeah there’s no other operations with the synergies that CSA has.. but this is cheap enough without synergies in my mind (1x 28’ EBITDA).. so if Harmony wait for that cash flow inflection (which has already begun) they will be forced to pay more. I think someone like Bill Beaments DVP could make sense as an interloper. Woodlawn a similar operation in NSW.. and Sulphur Springs very much of the same ilk (small UG polymetallic). A lot of synergies there and Bill can use his inflated scrip which is something Harmony cannot. He’s also got the network of underground operators in Aus.
Funny you mention Develop - that’s exactly who I was thinking might actually be an ‘interloper’ or have some interest in terms of alignment for the commodities and also workforce and gear flexibility etc. Polymetals probably too small/not yet with the runs on the board operationally etc. companies operating broken hill assets too far away for any real synergies you’d think
This is an A1 thesis write up. We hold this one at Seneca and think it's a great setup, but under the radar of many.