I’ve always tried to be 100% candid about potential bias and conflicts of interest. With that in mind, I like to talk about a company that I once worked for as a compensated consultant. I hold no ownership of any type as of this posting (but that may change), nor have I received any compensation for writing this. But I want to be abundantly clear I’m a big admirer of and hope I would be considered a good friend of a key executive of the company – Mark Morabito.
The first time I met Mark many years ago, he had been a lawyer who had worked in the corporate world and for a significant player in the resource industry. He recently had gone out on his own to run a public company. Unlike so many CEOs of junior resource companies, Mark was brutally honest about all matters, including his relative inexperience. It was this fact of bluntness that made me want to go to work for him.
I’ve watched Mark become an outstanding player in an industry that is in desperate need of more like him. Yes, he has had some juniors that flamed out – welcome to the crowd. But unlike so many CEOs who didn’t play the role of Captain and stay with the ship to do all it could before it sank, Mark demonstrated to me a loyalty and concern for shareholders that if just a few of the many ships I went down with over the years in the junior resource market had, I be far wealthier (and have far less egg on my face).
Mark’s flagship company is Alderon Iron Ore Corp. Alderon’s share price has taken a beating during the last couple of weeks, but given the company’s juggernaut like performance de-risking their Kami asset, I would say the decline is based mostly on the volatility in the iron ore price, which recently dropped below $100 per tonne, but has quickly snapped back to the psychologically important $110 per tonne level.
Mark Morabito is Alderon’s founder and Executive Chairman, and as such, has been repeating the view of Alderon’s Chinese partner, Hebei Iron and Steel, on the subject of iron ore prices for the past 18 months. Hebei went on record about 18 months ago stating that the price of iron ore will fluctuate between $110 and $140. They also noted although it may go above or below those marks, but that if it does, it won’t last long. Hebei purchases about 50MT or iron ore a year, and their track record is 100% in tact since making their iron ore price views publically known. Based on Alderon’s publically available Bankable Feasibility Study, the Kami project is a money maker at $90.00 per tonne, never mind $110 per tonne or higher.
Alderon is currently working on their final milestone prior to starting construction at their Kami Project later this year: - financing. This consists of three main components: a second offtake deal, senior debt financing and accessing equity capital markets. Based on my conversations with management, they are targeting the end of April for the debt financing and second offtake to close, with the equity capital market raise to follow thereafter. That would likely mean a mid-2014 construction start up.
There’s no doubt Alderon is in a group that is not in favor at the moment. But unless things changed since I last slept, that’s where one usually finds opportunity. When investors are throwing the baby out with the bath water when certain commodities are out of favor has proven many times to be one of the best times for careful analysis and selection.
The Alderon team has been working very diligently on putting the financing package together and with news anticipated in the next few weeks, I don’t see these depressed prices sticking forever.
If any key player in the resource market that I’ve met in the resource market over the years deserves to be the 1 in 100 that actually goes the whole nine yards from start-up to producer, in my book it’s Mark Morabito.