reason for caz trading halt - assessment of option

Reason for CAZ Trading Halt - Assessment of Options

Firstly, in the 25 months of its existence, KAZ has only had one prior Trading Halt - and that was last week on 14th November for the announcement "Investec funding commitment for Shovelanna Iron Ore Project".

The Trading Halt announcement came out on 11:11am following a "Notice Received" 25 minutes earlier at 10:46. The Trading Halt specified that the company would in "Pre-Open" until commencement of trading on 16th November, however the Investec funding announcement came out at just 61 minutes later at 12:12 on the 14th and trading resumed at 12:25.

Today, Notice Received was at 15:21, the stock went into Pre-Open and the Trading Halt announcement came out 37 minutes later at about 15:58, just before market close. This announcement specified that the company would in "Pre-Open" until commencement of trading on 24th November.

So CAZ does not use Trading Halts lightly - rule out any JVs on other projects, drilling results, reports, etc. Also rule out debt funding, since that is already in place, conditional on a positive bankable feasibility study.

It is possible that CAZ has been advised of the minister and/or warden's decisions, however such decisions would not require a Trading Halt and Rio would need a concurrent announcement. Also too soon (December or January more realistic). So rule out a decision on the exploration license.

Could it be capital raising (ie equity funding through a broker or investment bank), however:

a) No immediate need: Cash at end of September = $594k, less say $300k in subsequent spend, plus $440k from new issue on 9th Nov (1m shares @ 44c via Argonaut and PSL) = $740k

b) CAZ could just repeat the previous Argonaut and PSL deal (which was done without a Trading Halt) - at a much better price, of course.

So rule out capital raising, for now (BTW, there will be a need for funding the $6m drilling program announced on 11 November (ie an extra $3.5m beyond the ECH committment, plus other costs) - but that will come after granting of the exploration license).

There is a possiblity that government mediated discussions are underway between CAZ and Rio with a view to reaching a settlement, however I regard that as unlikely and hard to keep quite. For this reason I have discounted this option, however if it were to eventuate, the settlement would surely at least support the current share price.


So that leaves ... negotiations with a major iron ore developer/producer as the only probable reason for the Trading Halt. The obvious suspects are:
a) BHP
b) Rio
c) Fortescue Metals
d) Michael Wright and/or Gina Rinehart

The negotiations could be towards:
1) a buyout of Shovelanna
2) a JV development
3) a take-over of CAZ

Any of these options is great for shareholders.

Based on the expected grade and tonnage of the iron ore (extrapolating BHP's Ore Body 18 and the dimensions of the surface expression of the resource), any of these options would need to assign a value in the range $100m to $1b to Shovelanna in its current state - ie worth between $1.70 and $17 per CAZ share/option.

Bear in mind there is already a value of $1.10 to $1.20 assigned to Shovelanna in the current share price of $1.45, giving further share price upside of say 50c to $15. A value near to the mid-point seems most likely.

I would just add that Nathan has been a jump ahead of everyone all the way on this ride. Well done Nathan - and thanks.