Straws are discrete research notes that relate to a particular aspect of the company. Grouped under #hashtags, they are ranked by votes.
A good Straw offers a clear and concise perspective on the company and its prospects.
Please visit the forums tab for general discussion.
The SP has drifted downwards from it's peak of 8.72 to a more attractive 6.56...
But is it reasonable to buy based on unit economics? Which sorts of models are best used to value this kind of business? Is it reasonable to think of it as a future infrastructure style business? It would seem that in a few years time gold miners will be in a position where they either mine and pay for this service or they don't mine (given their competitors will likely be using the best assay technology available)
My notes from the Investor call this morning and the announcements. Overall, nothing really new as most were already revealed during the release of the Appendix 4C in Jan. Its all about getting the FY24 deployment of 18 units back on track.
Expense watch items:
Discl: Held IRL and in SM
Built the attached xls to line up the Statutory P&L and the Management View side-by-side as I found myself getting knotted up with the movement in the numbers from Half-to-Half, Qtr to Qtr and some of the numbers in the preso. Building the sheet also forced a deeper dive into the P&L which I found very helpful.
I still can’t value this. I really have no idea where to start.
But.
a lot of people clearly saw value the last year. A large cap raise has them well funded and was priced $6.50 a share. Since that shares have soared roughly 27% up and back again. So if we make the assumption that far value is near, or at $6.50.
Others on this have commented that the earnings potential of this is bigger than they can comprehend, sentiment I agree with. Other key points have been at execution risk of deploying more units to meet the TAM they have outlined.
My view on this will be along those lines, how well can they execute, and how many units do they roll out annually moving forward? Additionally, how much perfection on those two assumptions are currently cooked into the share price.
I am tempted IRL to use $6.50 as a floor price of value, and make a small investment. With my thesis being based around those 2 points. I will also be keeping a keen eye on the mining cycles to see if that has an affect.
My notes, including points raised on the brief-as-usual investor call this morning. I have had direct experience as a customer having customer-end contractual responsibility to prepare a site for a big installation of equipment by vendors - power, network, fire suppression, level concrete floors etc.. So I relate very much to the challenges that C79 are having at mine-site deployments and believe they will be sorted/pre-empted as C79 gains more experience deploying at mine sites.
Discl: Held IRL and in SM
SUMMARY
GOOD
WATCH ITEMS
NEW RISK
GUIDANCE FY24
Lower-end of forecast range of $48m to $58m - adopting a conservative approach and flagging the emerging risk that 18 units may not be deployed in FY24, some of these deployments may only be finalised in 1QFY25, expect to increase deployment at the tail end of the FY
Confident with retaining FY24 EBITDA forecast of $7m to $17m, middle to lower of that range - expecting operational efficiencies from operational hubs, costs are saved when deployments are delayed
OTHER POINTS
Source: FNArena.com [https://fnarena.com/index.php/analysis-data/consensus-forecasts/stock-analysis/?code=c79]
Disclosure: I hold C79 here in my Strawman.com virtual portfolio, but not in any real money portfolios at this point.
I just watched the meeting with Chrysos. I know I'm a bit behind.
It does seem like a staggeringly good long term outlook and final question about what are people missing highlighted what was already resonating with me.
These units have a 3.8 mil outlay. Repay themselves in 1 - 2 years. Then they're an annuity stream. It's a very short payback for something which will run for 10 - 20 years. Similar reason to why I'm keen on Smartparking (SPZ) it the rapid payback of cap ex.
So then the question I guess is valuation. According to yahoo finance, C79 has a market cap of 942mil and a PE of 1960.
The PE is outrageous at first glance but around the inflection point this is pretty standard I guess.
How much money will this business be gushing in 10 years...? No seriously, how much? I'm struggling to work it out...
SECURES ADDITIONAL $65m DEBT FACILITY
Can't help but feel that some big announcements are in the pipeline following the recent partnership announcement with Barrick Gold as this amount of secured funding allows from some big things to happen ...
Discl: Held IRL and in SM
Following the post from @Bear77 on the soaring gold price, the ABS released this quarters Australian Mineral Exploration spend today.
Gold exploration spend is on a roll which can only be good news for C79 as additional sampling over and above the minimum contracted photon-assay unit monthly cost is all upside revenue and profitability.
Discl: Held IRL and in SM
Australian Super has been busy accumulating 1.47% of C79 between Aug 2023 and mid-Nov 2023 at very attractive prices ranging from $4.91 to $6.29.
Ah ... if only I had bought more back then ...
Discl: Held IRL and in SM
Having gone through a flurry of capital raises over the years, I finally looked up ASX Listing Rule 7.1 which governs capital raises and learnt something new. This is probably nothing new for the more experienced members, but posting in case it helps anyone - it certainly opened my eyes!
Am forced to enter a company name for this post as there is no "general" category ...
To raise more than 15%, rule 7.1A kicks in and is significantly more onerous:
Full document: https://www.asx.com.au/documents/rules/gn21_chapter_7_restrictions.pdf
Takeaways for me:
Like many retail investors, I am admittedly wired up to "dislike capital raises", almost by default. However, having experienced 4 capital placements in the last 2-ish months, I can sense my thinking and emotions gradually changing to not instinctively dislike, but to assess each raise on its own merits.
Being the cricket tragic that I am, to use cricketing analogies:
The C79 Placement
Use of Funds
My Thoughts
Things are coming together very nicely for C79 - sales conversion, deployment momentum, product improvements, improving of manufacturing capacity, supply chain resilience.
Discl: Held IRL
Looks like a capital raise from Chrysos.
https://hotcopper.com.au/threads/ann-trading-halt.7682722/
No further details yet.
Hoping to look in more detail into this company later.
Very positive ASX announcement this morning. The market was and still is clearly excited (as am I!):
What is Significant
What Is Unclear
Have written to C79 Investor Relations seeking clarification on this topic - I suspect the wording was left somewhat vague given that the deal (if there is to be a deal), is very much in the mix, but not committed yet. This may explain why this was not price sensitive news today.
Discl: High Conviction Holding IRL
Attended the C79 call on their 1QFY24 Appendix 4C. It was the usual short call as C79 has a standard set of clear slides with changed numbers each quarter ... a good thing!
Built a simple xls to summarise the key metrics from the 4C that I need to watch, based on the various discussions here. Rather than take a YoY comparison, which for C79, is really no longer impressive or relvant, really, as it is marching forward in a clearly defined trajectory, have taken (1) a forward looking view against the mid-point of FY24 guidance, where the guidance was provided (2) QoQ trend for those metrics which provide a "rule-thy-world with PhotonAssay" perspective eg. Samples processed and (3) QoQ trend of key watch areas - funding and employment cost.
It does give a more balanced perspective of the risks as @RhinoInvestor rightfully pointed out, vs merely focusing on the wonderful by-definition revenue % increases, which masks future issues. The call with Dirk also provided valuable background context which makes these figures that much more meaningful.
Discl: High conviction holding IRL
GOOD
NOT SO GOOD
Nothing to not like
TO WATCH
My notes from the very good conversation with Dirk Treasure, Founder and CEO of C79. I walked away with a much deeper understanding of the business, financially and operationally, which has made me further appreciate the quality of the business in terms of TAM/customers, moat and economics.
One new risk that crystallised for me is geo-political risk. Some of the units are being deployed in nasty reas of the world - if trouble brews, the carefully laid out deployment schedules and associated revenue impacts will be impacted.
Discl: My conviction on C79 has increased further and I topped up IRL a bit after the meeting as the price dipped closer to $6 today. In topping up, I was taking a leaf from Ian Cassel's wisdom where he said that he has fared better when he averages UP on his high conviction companies then averaging down. Have held C79 since Dec 2022, price has done very well since, so averaging up is not as painful now vs starting a new position altogether.
HISTORY
OVERVIEW OF PHOTON-ASSAY UNIT
TOTAL ADDRESSABLE MARKET
PATENTS, TECHNOLOGY/IP MOAT
SCALABILITY
FINANCING
R&D IMPROVEMENTS
UTILISATION OF TECHNOLOGY
MACRO INFLUENCES
DEPLOYMENT CYCLE
RISKS
KEY TAKEAWAY THAT MARKET STRUGGLES WITH
Did a bit more work this evening and updated the C79 cashflow outlook for FY24
Made the following changes to the cash flow xls of 3 weeks ago:
The cash position at end-FY24 is now looking to be a SHORTFALL of ($1.3m) vs the earlier calculated cash surplus of $29.8m.
There will be ~$20.2m of debt still available at the end of FY24. This can fund ~4.9 FY25 deployment units, which given the FY24 plan, is ~1 Quarter's worth of FY25 deployment.
Funding is thus in place for ~42.9 (20 FY23 + 18 FY24 + 4.9 FY25) of the 49 contracted units.
The CBA facility size thus seems to make good sense, noting that it is contracted when the interest rate cycle has been on the up. A new loan facility sometime mid-FY24 is probably on the cards when the interest rate cycle should hopefully be on its way down. This should cover FY25 + new contracts beyond the current 49.
I do not see any capital raise occurring due purely to operational funding gaps. Indeed, given the high visibility of revenue, costs and funding needs, it will probably be a huge management red flag if they do not get the funding right ...
An opportunistic capital raise, similar to AD8, could be something to look out for in 3Q/4Q FY24, if the share price spikes to say $10-12 from the current ~$6 as a cheaper/more effective way of raising capital vs debt. This could be based on a better-than-expected revenue trajectory and/or a surge in newly contracted sales or expanded breadth of use of the Assay units.
Am happy that I now have a simplistic cash flow model against which to track the cash position during FY24!
Hope this makes sense.
Remaining very bullish on C79 and looking for the opportunity to top up.
Covered them also in this weeks article (https://www.goforgrowth.co/p/10-growers-in-fy23-part-3). Quality chart from @jcmleng on expected cashflow per unit. I do wonder what the chart looks like if we extrapolate to 5 years. In my mind the valuation on this one feels a little bit out there as it stands. It feels like 2 good years of continued strong growth are built into the price.
Although typically when I see a high valuation, the only result is it just seems to get higher over time.
Curious how holders think of valuing this one?
@RhinoInvestor , your post got me thinking a bit more deeply about the cashflow for C79 and challenged my bullishness! I knocked up a back-of-envelope cash flow xls to clarify my thought process, hoping it helps answer some of your questions/thoughts.
This super raw calcs point to the min cash surplus end-FY2024 to be shy of $30m, meaning, there should be no need for further drawdown of the CBA facility in FY2024.
Extrapolating into FY25, the Cash surplus of $29.8m should fund roughly 13.67 units in FY2025 without the need for debt. As of now, C79 has 11 units contracted to be deployed in FY2025 (49 contracted less 20 deployed less 18 FY24). Assuming no further sales (highly improbable), C79's cash balance will fund the remaining 11 units for FY25 without resorting to debt.
The $21.5m undrawn facility will, on its own, fund slightly under 10 units. If these 10 units were contracted for delivery in FY2025, total units that need to be deployed in FY25 will be 21 - more or less the same as FY23 and FY24, very much in the ball park.
So, as of now, it appears that it is not unreasonable to conclude that C79 is well funded up to end FY2025 to deploy 21 units through a mixture of debt and cash. With locked in contracts, clear visibility of revenue and cash inflows that stretch into FY25, with funding available for 10 new contracts, I think this is as certain as it will get that C79 will have no reason to capital raise.
I think the key point is the progressive increase in MMAP which flows through as soon as a unit is deployed, so each deployment results in a contracted step up of revenue and cash flow. This is what makes C79 highly attractive in my view.
Completely happy to be corrected on the thought process and assumptions. It helped clear my head a bit anyway!
Discl: Held IRL, looking to top up on weakness
Is C79 going to need to raise "Growth CAPEX" in FY24?
I'm hoping these guys can manage their cash flow so they don't have to shake the tin again with investors to be able to meet FY25 plans ...
The prospect of further dilution is my biggest fear with this company to support what they describe as "Cadence of Growth CAPEX to increase in FY24" ... anyone able to share their opinion?
Its a very capital intensive business if they are going to be able to grow into their TAM. Looks to me like they are going to run out of capital before they get to 10% of the way there.
Unit economics still look pretty good but I'm struggling to see when the Operating Expenses might tail off.
A good set of results from C79. My conviction has increased with each quarter and will be looking to top up on weakness.
Discl: Held IRL (trade did not close on SM)
GOOD
Financials
Cash Position
Operations
FY24 Guidance
NOT SO GOOD
Nothing to not like - it was a solid result and guidance, with a good degree of certainty of being achievable
WHAT TO LOOK OUT FOR
SUMMARY
Solid result with good forward visibility
It is all about deployment excellence in deploying the new PhotonAssay units - everything else follows from that - good momentum and track record thus far inspires confidence
C79 came out of a 2 day Trading Halt followed by a 1 day Voluntary Suspension in response to the ASX Speeding Ticket as the price rocketed from from a close of $4.95 on Wednesday, 9 August 2023 to a high of $6.10 on Tuesday, 15 August 2023 following daily increases starting on Thursday, 10 August 2023.
Was super pleased with this price rocket as I topped up at $4.95 on Wed 9 Aug ...
No new news or announcements in C79’s response to the ASX speeding ticket. Not unsurprising as C79 is well capitalised, so there was little risk of a capital raise or share placement.
2 points that I took away from the announcement, that I did not fully appreciate before, in italics:
Any minesite deployment/re-deployment or sales win will be more positive news vs a laboratory-win.
Further buying in to C79 of larger funds, which will increase coverage of C79
SUMMARY
Remaining very bullish on C79.
My review and summary of C79's Q4FY23 result announcement of last week. Text in italics are my comments, the rest are extracts from the Appendix 4C announcement and preso.
Discl: Held IRL looking to top up this week and open position with SM
KEY TAKEAWAYS
Summary of Announcement and Presentation
Deployment Progress
CashFlow Summary
FY24 Guidance
My notes on Chrysos Corporation C79. Nice to see the connection between XRF and C79 in the XRF investor packs and in the XRF chat this week. The price has tipped past $4.00 from a low of around $3.00, not too many weeks ago. C79 was also included in the All Ordinaries index on 20 Mar 2023 - the upward movement in price and trade volume in and around this date was quite noticeable.
Disclosure: Held IRL
BUSINESS
INVESTMENT THESIS
1. Strong Technology Moat
Assay expenditure is a non-discretionary operating cost for gold miners - embedded in the mining value chain as sampling is required at each step of the chain
2. Large & Unpenetrated TAM - Good and Visible Growth Runway
3. Good Revenue and Earning Visibility
4. Cash Flow Positive, Well Funded
5. Future Growth Opportunities
RISKS TO THESIS
WATCH AREAS