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TNG

TNG Limited (ASX:TNG)

NEARING DEVELOPMENT TNG Limited (“TNG” or “the Company”) has made significant progress towards a planned Final Investment Decision (“FID”), expected by mid-2020, for its 100% owned Mount Peake Vanadium- Titanium-Iron Project (“Mount Peake” or “the Project”), located in the Northern Territory (“NT”) of Australia. The Project includes two components - the Mount Peake mine site located near Alice Springs, and the TIVAN® processing plant in Darwin A key advance, as presented in our December 2018 Flash Note, has been the mandating of the German Government owned KfW IPEX-Bank as the lead debt arranger; the mandate commenced in January 2019, and as part of the mandate KfW IPEX-Bank has been providing input, largely relating to costs, into the ongoing Front-End Engineering and Design (“FEED”) Study being overseen by the Company’s German strategic engineering and construction partner, SMS group GmbH (“SMS group”). The mandating of KfW IPEX-Bank should allow access to export credit agency (“ECA”) debt finance, with this generally having superior terms to traditional sources. The FEED Study has resulted in an optimised delivery strategy as recently released; this presents a single stage, 2 Mtpa project with a life of 37 years, in contrast to the two stage 3 Mtpa/6 Mtpa project as presented in the original and updated Definitive Feasibility Study (“DFS”). It is expected that the study will be completed by mid-2020, at which stage a FID will be made. This has led to a slight decrease in expected up-front capex (and no requirement for expansion capex) and an as expected incremental increase in operating costs - costs however are interim, and will be firmed up in the ongoing FEED Study. The Company now has ~80% by value of planned production under binding life of mine (“LOM”) offtake agreements - this includes 100% of the planned 100,000 tpa of titanium dioxide pigment (trademarked as TNG360™) with Swiss based global group, DKSH, and 60% of the planned vanadium products with WOOJIN Metals of South Korea. The Company is currently advancing offtake for the planned 500,000 tpa of high grade iron fines products. Significant progress has also been made on the permitting front, with the Mining and Ancillary Licences/Leases being granted, following formal execution of the Native Title Mining Agreement and environmental approvals - the final key approval is that of the Mining Management Plan (“MMP”), with this document recently being lodged. TNG has also recently lodged the Environmental Impact Statement (“EIS”) for the proposed TIVAN® facility in Darwin. Approval of both is expected in Q1/ Q2, CY2020. KEY POINTS Robust project: Although the Company’s modelling results in a lower NPV of A$2.8 billion (pretax), the optimised delivery strategy for Mount Peake still results in a robust project with the inputs used - our modelling indicates that it can readily absorb 15% adverse movements in both costs and revenues. Permitting and offtake largely in place: The Project is close to being fully permitted, and thus has been significantly de-risked - this is also reinforced by having the majority of the potential product value being under binding offtake agreements, including 100% of the titanium dioxide pigment which is expected to provide ~60% of the revenue. KfW IPEX-Bank: In addition to providing access to quality debt financiers (including ECA debt), the bank undertakes very comprehensive due diligence with a hands-on role in the FEED Study, which will result in robust outcomes and a potentially readily financeable project. Cashed up: With ~A$20 million in the bank, the Company should be funded through to the FID. VALUATION SUMMARY Our risked, after tax and funded (using a conceptual funding model with a diluted share structure of 2.9 B shares) technical valuation of TNG has reduced to A$0.369/share from our previous valuation of A$0.601/share as presented in our December 2018 Flash Note. This is largely due to the change of project scope, and is in line with the change in the Mount Peake NPV as presented by the Company. TNG indicative base case technical valuation - funded and after tax Asset Value (A$m) Risk Factor Risked Risked/Share Notes Mount Peake $1,512 70% $1,058 $0.362 Post-tax NPV8 Cash $20.77 100% $20.77 $0.007 September 30, 2017 Listed Investments $0.22 100% $0.22 $0.000 Current Total $1,533 N/A $1,079 $0.369 Please note that our valuation is based on interim cost figures as presented in the Company’s release of September 11, 2019. As noted by TNG, estimated costs may change with progress of the FEED Study, and thus costs used, and hence the valuation should be treated as being

  • 13 Nov 19
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1300 Smiles

Listed Managed Investment - Monthly Sector Review

KKR Launches its Credit Income Fund US Investment Group KKR launched an IPO for a new listed investment trust, the KKR Credit Income Fund (ASX: KKC), and is seeking to raise up to $925m. The offer size was increased from a previous maximum of $825m due to strong demand under the cornerstone and broker firm offers. Given the strong demand the offer closed on 16 October, 2019, just two days after opening. The shares are expected to start trading on the ASX on 21 November. KKC, which will invest in a range of credit strategies, joins the growing list of credit focussed LITs on the ASX. The fund will invest in two underlying KKR credit investment strategies, specifically a long-term target portfolio allocation of 50-60% to the Global Credit Opportunities Fund (GCOF) and a long-term target allocation of 40- 50% to the European Direct Lending (EDL) investment strategy, via the soon to be launched KLPE II. GCOF invests in a portfolio of subinvestment grade traded credit securities, mainly bank loans and high yield bonds. KLPE II is a European direct lending strategy targeting upper middle-market companies in Western Europe by largely first lien, senior secured private debt, with a very selective provision of second lien secured facilities. KKC intends paying quarterly distributions and has a target net return of 6 – 8% p.a. with an estimated current net yield of 4 – 6% p.a. once the offer funds have been deployed. Whilst the trust may appeal to investors looking for regular income, we remind investors that sub-investment grade assets may lead to heightened net asset value volatility. The Manager has a strong track record and IIR has confidence in its ability to achieve the stated investment objectives over the foreseeable future and continue to generate well above broad market performance over the medium and long term. Our rating for KKC is Recommended Plus. Please refer to our full report for more detail. Two New LITs join the ASX The Partners Group Global Income Fund (ASX: PGG) commenced trading on the ASX on 26 September 2019 after raising $550m. This was above the initial target of $500m and reflects the strong demand for higher yielding income investments. Our rating for PGG is Recommended. Magellan High Conviction Trust (ASX:MHH) commenced trading on the ASX on 9 October after raising $862m, well above the minimum target of $250m. There was no maximum under the offer. MHH will invest in a portfolio of 8 to 12 of the Manager’s best global stock ideas based on the same investment process that underpins the long running Magellan Global Fund and the ASX listed Magellan Global Trust (ASX:MGG). Our rating for MHH is Recommended. URB to Merge with 360 Capital Fund The Listed Investment Company URB Investments (ASX:URB) announced plans to merge with 360 Capital Total Return Fund (ASX:TOT) via a scheme of arrangement. Investors in URB will receive 0.9833 TOT share for each URB share, the equivalent of $1.16 URB share. The consideration was based on the respective NTA calculations for both URB and TOT at 30 September 2019. It represents a slight premium of 3% to adjusted pre-tax NTA per share for URB shareholders and premium of 13.2% to URB’s closing price ahead of the announcement. URB was listed on the ASX in April 2017 after an IPO that raised $80.1m and has a portfolio invested based on the urban renewal theme. URB has the ability to invest up to 75% of its portfolio in direct property, but following the sale of a number of properties around 12% of the portfolio is in direct property. At 30 September equities made up slightly more than 50% of the portfolio and cash was at 34.6%. With a relatively small market cap, URB’s shares have mostly traded at a discount to pre-tax NTA since listing despite a good performance from the fund. For the two years to 30 September 2019 the portfolio delivered a return of 9.5% p.a. The scheme of arrangement is subject to URB shareholder approval. If approved, URB shareholders will own shares in a larger listed property vehicle that will have a market cap of around $170m and will own a diversified portfolio of direct and indirect real estate assets and real estate debt investments. The merger continues the wave of corporate activity we have seen in the LMI sector and, given the prevalence of discounts to NTA, particularly amongst some of the smaller LICs and LITs, we expect the trend to continue. QRI Raises $94.7m Qualitas Real Estate Income Fund (ASX:QRI) raised $94.7m via its 1 for 1 entitlement offer, less than the $266m under the offer. $39m of the proceeds has already been invested in the Qualitas Senior Debt Fund with the remaining funds to be invested in a number of commercial real estate loans which are currently being assessed by the Manager. The Manager continues to see strong demand for commercial real estate loans and has a robust debt pipeline. Spotlight on Ellerston Global Investments Limited Ellerston Global Investments Limited (ASX:EGI) commenced trading on the ASX on 20 October 2014. EGI provides investors with a concentrated global equity portfolio with a mid/small cap bias based on the highest conviction ideas from a filtered universe of securities that the Manager feels are in a period of ‘Price Discovery’. The EGI portfolio is benchmark independent, providing diversification to investor’s global equity portfolios. EGI seeks to construct a concentrated portfolio of global companies that are unlikely to be found in most global equity portfolios or in standard global equity ETF’s. The Manager takes an active, absolute and often contrarian approach to identify opportunities in global equity markets. The portfolio generally consist of between 20-40 securities representing the highest conviction ideas, with the most compelling risk/reward asymmetry. The Manager’s investment process combines both qualitative and quantitative approaches, and is both systematic and repeatable. Investment opportunities often result from catalysts including spin offs, fallen angels, management changes, corporate restructures, post IPO and which offer embedded optionality. EGI has underperformed on a pre-tax NTA basis versus its benchmark the MSCI World Index (Local) over the medium term. However, we note the recent short term performance has been better. The dilution impact of a number of options which were exercised in 2018 does factor in this pre-tax NTA underperformance versus the benchmark. At 31 August 2019 EGI was trading at an 18.7% discount to its NTA and well above its three year average discount of 11.0%. The discount is also well above the IIR LMI international diversified shares peer group which trades currently at an average discount of 5.9%. The current discount also represents the largest discount to NTA since listing. In our view the current discount provides a possible attractive entry point for investors who are seeking exposure to a diversified portfolio of international stocks. If EGI can build on the recent improved performance, this may lead to a narrowing of the discount. We also note, that a on market share buyback is currently active as part of capital management initiative by the Board to try and narrow the discount. EGI currently holds a Recommended rating from IIR. EGI also provides investors with a circa 3.1% fully franked dividend yield. The EGI yield is slightly higher than its benchmark index yield which is circa 2.5 %. The index provides minimal franking for Australian investors if accessed through an ETF given the low allocation of Australian shares in the MSCI World index which is dominated by US companies. International companies also tend to be lower yielding than their Australian counterparts. This is one of the main contributing factors as to why most international equity LMIs listed on the ASX tend be lower in yield when compared to Australian only focused equity LMI’s. We note the final dividend declared for FY19 was in line with the final dividend declared in respect of the FY18 year with total FY19 dividends unchanged on the prior year.

  • 13 Nov 19
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