Avexa will take $12.5 million a year pre-tax and about $US8.1 million a year after tax. Kirkwood expects the $US6 million loan should be repaid out of the first year’s cashflow.
Mining is expected to begin in the next nine-to-12 months, with cash to start flowing to Avexa in 18 months. The mine is expected to have a life of 15 years.
“Two experts have reviewed and verified the technical and economic assumptions used in the project’s business plan,” Kirkwood told the market yesterday.
“Avexa is attracted to an opportunity which, for a $US10 million investment, is expected to generate $US12.5 million per annum before finance costs and tax based on the reviewed underlying project assumptions. The investment is expected to have a pay-back period of less than two years on these assumptions.”
Of course, this is not an investment without risk.
Firstly, Avexa currently has $16 million in cash and liquid investments, so a $10 million outlay is no small thing.
Secondly, the mine in Birmingham has been in operation before and will now be re-opened – taking a bet on a project that was canned by its previous owners isn’t a traditional path to success, although it has been done plenty of times before.
Thirdly, commodity prices are volatile. While the mine’s cost base looks low compared with current prices, those dynamics can change.
And finally, Avexa is a biotechnology company, not a mining investor. Expert approval or not, the company will clearly be operating outside its comfort zone.
All that said, it will be fascinating to watch how this deal pans out. And at least you can’t criticise Kirkwood for not bringing an imaginative approach to an old problem.
