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HDG - Hodges Resources

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Sure thing springhill. I'll copy over my posts from HC to this date that I feel could be of interest.

Here's what I was thinking based on the original announcement over a week ago. I liked what I saw and I took a small position in the company based on some rough comparisons between HDG and AFR.

Posted March 10

Here are some comparisons with AFR...

AFR's "raw coal"Calorific Value: 19MJ/tonne
Ash Content: 27%
Seam Width: 8.8m
Sulphur: 1.8%

HDG's "raw coal"Calorific Value: 19.7MJ/tonne
Ash Content: 33%
Seam Width: 7.8m
Sulphur: 0.86%​
So as you can see, it's fairly similar, and while everyone seems to be asking about the ash content, let us not forget that HDG's coal has less than half the sulphur than what AFR have their hands on.

Now let's look at what AFR and HDG are hoping to beneficate their product into...

AFR's "beneficated coal"
Calorific Value: 22MJ/tonne
Ash Content: 18%
Sulphur: 0.35%
HDG's "beneficated coal" - Moruple Power Plant stats
Calorific Value: 23MJ/tonne
Ash Content: 22%
Sulphur: >1%​
AFR have a JORC resource due in April, HDG have a JORC resource due "within 6 months". HDG have a wash plant right on their front door, and while AFR have a superior stripping ratio which will make for lower operating costs, I cannot see how HDG is trading with a market cap of $14M while AFR is up there at over $200M.

Looks way to cheap doesn't it...


I then went quiet for a few days until the stock went back into a trading halt pending a re-release of the announcement. Supposedly some of the values weren't JORC complient and they had to be omitted, but low and be hold, we got an inferred resource out of the correction!

Posted March 15

Prospect One
414Mt JORC inferred resource
5.5m seams
21MJ/kg
30% Ash
1200Mt resource target

HDG will aqcuire 75% of the above by expending $0.5M, and spending $3M on drill costs over the next 24months, of which $1M must be spent in the first year.

HDG has the option to acquire a further 24% stake (net 99%) if it pays 10c for each tonne of measured (not inferred) resources and funds another $2M worth of exploration/development costs over a two year period.

In my opinion, this fee on the measured resource will be around $20M-$30M depending on the measured resource at the time. In two years, it will probably stand at around the 200Mt-300Mt JORC measured figure.

Total costs of approximately $3.5M for a 75% stake, and about $30M for a 99% stake.

Prospect Two
2.5m to 23.7m seams
~22.5MJ/kg
~28% Ash
1300Mt resource target

HDG pays an upfront fee of $0.02M for exlusivity to the deal until May 13. On election to take up the prospect, HDG can spend up to a threshold of $7M on exploration costs for the next 18 months.

At the end of this period (November 2012), HDG will pay between $6M and $9M dending on the JORC measured (not inferred) resource at the time.

Once this payment has been finalised, the remaining difference between the costs on the second prospect and $70M will be paid by HDG to acquire 90% of this second prospect, and 90% of any remaining interests in the company.

Total costs of $70M for a 90% stake.

Conclusion
At first this deal sounds confusing, but I can guarentee that this is an opportunity of a lifetime for this company.

HDG can expend $3.5M for a 75% stake at the first prospect which should itself have an inferred resource of around 1Bt in 6 months time. We can also expend a further 10cents for every JORC measured resource tonne of coal at the prospect, and pick up a lazy 99% stake in the prospect!

Furthermore, between $13M and $16M will be spent at the second prospect for exploration up until November 2012. At this time, any balance between the funds spent on the second prospect so far will be handed over to Jaguar to complete a $70M transaction. This would hand us a 90% stake in the second prospect!

Long story short, this is an absolute no brainer. The grades are comparitive with AFR who have gone on a massive run of recent times, and we have tonnages of coal coming out of our ears.

Think about this for a minute. Prospect one alone has a JORC inferred resource of 400Mt, and we can have 300Mt of it for ourselves if we pay a measly $3.5M, and we have just opened up a $3M debt facility to help this cause.

Thermal coal companies normally attribute an EV of 10cents-15cents per tonne of JORC inferred resource. That would value HDG right now at $30M of 60cents per share. If we infer up 1Bt of the stuff, then I see no reason for HDG to be trading under $1 in 6 months time. Infact I will go as far to say that this has such massive potential here that this will be a 10bagger in 12 months in my opinion.


On the back of this news I tripled my position in the company. I then went on to email the managing director of Hodges to see what he was thinking. His response spoke wonders!!

Here is his response...

Dear Charles,

Firstly let me welcome you to Hodges.

To answer your question, there have been minimal wash tests completed thus far; however, those that have been done have shown we can get Grade A export coal at viable yields. The percentage and yields are the critical thing over the entire deposit, not just a few holes. It is true we do have similar (if not better) raw coal qualities as many of the other companies which are in the area; and we do expect to get similar results, but until we do the work, these are all just assumptions.

Hodges is a tightly held company that has been flying below the radar for years. It will take time for the news to flow out into the broader market, but we will be working hard to increase our profile once we complete the due diligence on both projects. We will definitely take up the options if there are no issues with the titles/companies and technical review. Only time will tell on this.

You mention AFR. They are at least a year ahead of us, and if you look further out we have CIC Energy at the forefront of successful Botswana coal companies. I too believe we are undervalued at the moment. If we take the option we will be aggressively exploring and converting the targets into JORC resources, as well as initiating mining studies. It could be a very exciting 12 months for all our shareholders.

I hope you find this email to your satisfaction.

Kind regards,

MARK MAJOR
Managing Director
HODGES RESOURCES LIMITED

Level 2 / 38 Richardson Street, West Perth, WA, 6005
Tel: +61 8 93226412 | Fax: +61 8 93226398 | Mbl: 0447954112


Having heard Grade A coal spoken from the man himself, I put up a comparison of the various coal grades that are in the market right now...

For those who are wondering, here are the common paramaters used in depicting export grades.

Obviously you have to wash and beneficate the raw coal to get it up to these standards.

Grade A (Newcastle) coal has a calorific value of 27.5MJ/kg, and an ash content of no higher than 19.5%. This currently sells at $130/tonne. Most thermal coal companies would make profit margins at these prices over $60/tonne.

Grade B (Richards Bay) coal has a calorific value of 26MJ/kg and an ash content of no higher than 24%. This currently sells at $118/tonne. Most thermal coal companies would make profit margins at these prices over $45/tonne.

Grade C coal has a calorific value of 23.5MJ/kg and an ash content of no higher than 29%. I believe this is sold domestically moreso than in export, and most African based companies make margins of about $7/tonne.

Most importantly, we should be able to look forward to at least some export sales down the track if Mark's sentiments are anything to go by. Obviously a very long way to go before that, but it doesn't hurt to look ahead!


On Friday, I did a bit of TA on the stock. A close above 38cents should leave little resistance up to 48.5cents. We also have that gap at 50cents to fill on the way up.

hdgmar18.png


That's pretty much it for now. But I am sure that this stock will be keenly followed throughout 2011.

If you have a change of heart about HC, your thoughts over there will be warmly welcomed. You don't even need to worry about the other forums on there if it is too 'optimistic' for your liking.
 

springhill

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5haretrader, i'm sure there is a thread here for 'Post of the Year', that will be my nomination without hesitation. Excellent work, and i'm sure very time consuming. Worth every second.
Congrats mate! Fascinating reading.
Only wish i could reach that level of detail.

HDG continuing to reward it's shareholders today :)
 

springhill

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Hodges is pleased to announce that resource definition drilling has commenced at the company’s Moiyabana Coal Project (“Moiyabana” (PL93/2008 and PL94/2007)). Moiyabana, with a recently upgraded range of 1,400Mt-1,650Mt of in situ coal within
the Exploration Target, is Hodges’ flagship coal project located in central eastern Botswana.

With Board approval received for the Company’ largest drill campaign to date, the resource drilling program is planned to consist of 125 drill holes for a total of 14,000 meters and be completed over three consecutive phases.

Phase One drilling will initially focus on the definition of a maiden JORC compliant inferred resource over the central southern target area while subsequent drilling phases will be aimed at both upgrading existing resource categories and defining the extent and continuity of new resource areas.
During the course of the drill program average and maximum hole depths have been modelled to be in the order of 125 meters and 180 meters respectively. It is expected that Phase One drilling will be completed within 2 months while the greater program will be completed over a 6 month period.

Currently one reverse circulation and two diamond drill rigs are present at site however, an additional two diamond drill rigs are expected to arrive at site within approximately one month.

http://www.asx.com.au/asxpdf/20110615/pdf/41z7443bky8qqr.pdf
 

springhill

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springhill

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Sold my last parcel of HDG back in March, so it had slipped to the back of a secondary watchlist, but upon looking again was suprised to see it down to 15.5c.
Apparently after all this time they are struggling to announce a JORC resource, through lab delays, not a fault of their own i believe. A JORC should see this re-rated?
This could be due for a re-entry soon if it comes back to my original purchase price of 12c.

Nathan McMahon has continued to purchase on market right up until the 29th of last month (May). He either truly believes in HDG, or wipes his @ss with $100 notes!

Still a tight structure with 78m shares on issue and after this quarterly they should have around $1.6m in the bank.

For those interested in overseas coal, worth reviewing this thread and their announcements over the last 12 months.
 
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HDG has posted a JORC inferred at Moruple South of 2.3Bt, a whopping 485% above expectations.

It's important to note that the 485% reflects the growth from their initial statement (May 2011), the actual upgrade from the last figure reported in their quarterly report is only about a 44% increase... but, that's a 44% increase on what was already a huge number... it's now a very huge number ;)

It also needs pointing out that they have still got a very long way to go before the resource gets to any stage nearing production (like 2-4 years probably), so there is a lot of water yet to go under the bridge.

...but, I do like the the fact that a lot of it is fairly close to the surface and the energy values (and low sulphur/ash) look as though they are going to be pretty good (more definition around those numbers should be coming in the next six months hopefully). No debt, enough money for another year or two, only 78m shares on issue... definitely worth keeping an eye on IMO, I grabbed a small amount at 15.5c today, but I wouldn't be surprised if it drops quite a bit lower in the next couple of days as the buy orders seemed to dry up quite quickly by the end of the day, which I'm sure they would have been a bit disappointed over (was bit of a weird day though).
 

springhill

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It's important to note that the 485% reflects the growth from their initial statement (May 2011), the actual upgrade from the last figure reported in their quarterly report is only about a 44% increase... but, that's a 44% increase on what was already a huge number... it's now a very huge number ;)

Well spotted Vader.
Never let the truth get in the way of a good announcement! :D


It also needs pointing out that they have still got a very long way to go before the resource gets to any stage nearing production (like 2-4 years probably), so there is a lot of water yet to go under the bridge.

I can't for the life of me find it, but i distinctly remember reading some time back HDG targeting 2015 for production.
 
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