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Any value from Zinnwald would benefit BCN.
If Deutsche Lithium is to be spun off and a separate entity to Bacanora Lithium, then would that not mean that any value from Zinwald shouldn't be taken into consideration in Bacanoras share price?
Have I got that wrong?
We paid 10m euros. 5m for 50% and 5m towards FS
4 - BCN can't use all their current free cash. They have their own running costs to meet for 2-3 years as well as a potential $30m bill to exercise the Solarworld option on the other 50% of Zinwald.
So BCN already paid for 50% of Zinwald - was that $30Million? And BCN Market Cap is $50 Million. Doesn't seem a fair valuation as Zinwald is third of NPV of BCN.
Almost like Zinwald was a huge cost - but added no Market Value to BCN.
And if BCN pays $30Million for the other 50% of Zinwald and then floats it off next Year what do we expect to be added to BCN Cash Pile/ Net Worth? $60 Spent on Zinwald and thats more than the current Market Cap of BCN as a whole?
Loving the posts last night/this morning.
I feel you guys did a better job than our CEO regarding the last RNS!
Thanks all
Thanks, Zarro.
from page 11 of the latest year end accounts:
"In the financial year, Bacanora has secured US$150 million of conditional debt funding from RK Mine Finance, and in October 2019 Ganfeng acquired 29.99% of the Company and 22.5% at the project level for a total of £22 million, and has a commitment for an additional US$25 million of equity finance from Hanwa, thereby reducing financing risk. The Company is currently finalising its plans to re-engage with the equity markets to secure the balance of its funding requirements."
The assumption is that Hanwa will take part in any equity raise; is that a valid assumption?
Clearly, they didn't wish to participate last time , so would they next time?
They invested in order to get the off-take agreement and they don't appear to have any ambitions beyond that; so why would they risk more capital, given they've achieved what they wanted? Does it really matter to them if they are diluted?
By the way, there was an interesting article about Tesla today in the Telegraph and their plans for expansion in Australia. It's not of any direct relevance to BCN, but is a clear indication of the direction of travel.
Zarro -
1. I see your point on the RK debt, thanks for your 'house buy' example which helps me understand better (especially having only just moved house myself!) . Not quite sure how it works here though as I assume that RK will only hold a charge over the percentage that BCN still own, they wouldnt have a charge over the 22.5% that GF now own surely?
2. yes I think you are right on Hanwa, I think its all but guaranteed that they will participate though so I would consider that as banked (albeit via a placing so a light negative effect on current shareholders)
3. I agree. I have tried again to find the bit where I thought I read that they could not be diluted but I think it is as you suggest, that they have the first right to participate in any placing to ensure they remain at 29.9%
4. Agree they obviously have their own running costs so the 40m cash in bank will slowly dwindle. Not sure what will happen with Zinwald, guess it depends on whether its spun off at some point
I also didnt take the current RK drawdown into account.
As Addicknt says - clearly confusion with PI's trying to piece it together, would have been nice to get a bit more certainty from PS so we are not all left guessing
Dave I can only point to the following:
1 - "RK holds fixed and floating charge over the assets of the relevant Mexican subsidiaries related to the Sonora Lithium Project." That is a straight lift from note 10 to the accounts. If we agreed to go and buy a £300k house on a 50/50 basis and I got a loan for £150k with a 50% LTV mortgage on the house would you be happy to put in your £150k contribution in return for a 50% share of the £150k equity in the house?
2 - Hanwa are not 'gifting' any further investment - it will be raised in the placing with new shares issued - so it is still part of the shortfall.
3 - GF will almost certainly take up 30% of any new share placing (this will plug part of the cash shortfall but is also part of the new shares to be issued in the placing)
4 - BCN can't use all their current free cash. They have their own running costs to meet for 2-3 years as well as a potential $30m bill to exercise the Solarworld option on the other 50% of Zinwald.
Tivman - you are right. The $420 total cost probably includes the ($25m?) drawn and spent to date or part sitting as cash with BCN - there will probably need to be an adjustment for this between the project partners....but it is small numbers.
To my list of possible sources for the missing pieces of the funding jigsaw I should have added (f) RK increase their funding for the project - by say $70m (they have a condition that at least $200m goes in behind them) (g) RK is refinanced by a new Lender at a higher sum - would be expensive in make whole / early repayment charges (h) a new mezzanine lender agrees to provide debt funding behind RK. No doubt there are other possible avenues.
Dave, I think your first calculation is about right, although it's unclear whether the current works being undertaken are part of the overall expenditure or are in addition to it. In any event, in six months time the 40m will have diminished significantly. And Tivman is correct, current cash is represented, in part, by the RK draw down.
Clearly, in order to avoid dilution, PS will be seeking to raise the balance at the operating company level, but it wouldn't be unreasonable to think debt providers may wish for a lower level of leverage and therefore insist upon an equity raise by the plc. As to pricing, it is to be hoped 25p is the lowest benchmark.
By the way, someone asked about the Oman facility. That has now lapsed, although I guess it could be resurrected, and it would strange if they declined to re-offer the facility.
What this conversation demonstrates is that a fair degree of confusion still exists, although I suspect PS doesn't see it this way.
My guess is that there will be a gap of circa 130m, depending upon what Hanwa decide to do.
Dave
Does cash not inc first RK draw down ?
Zarro - Ganfeng will need to put in 22.5% of the full cap ex cost of 420m, not just 22.5% of the 270m balance from your calculation.
So total cost of 420m
Less 22.5% Ganfeng must pay (94.5m)
Less 40m cash in bank
Less 150m RK debt facility
Less 25m hanwa
Equals 110.5m left to fund
If Ganfeng take up their 50% it would be
420m less the 50% paid by GF
Less 150m RK debt facility
Less 40m cash in bank
Less c15m from GF to increase to 50%
Less 25m hanwa
Equals zero funding left with money left over
Have I worked that out right?
* in (a) the second reference to Ganfeng should read Bacanora
I think it is probable Hanwa will fund $25m - it is stated as such in the accounts. It is also possible that Oman will fund $65m. I don't think there is any real problem raising the total required funding - the point that some people may be missing is that those investments and Ganfengs 29.9% Plc share - will be done via the placing of new shares. The funding required will be there (which is why Secker has, in my view slightly misleadingly, confirmed that the remaining gap is very small)......but what matters for the future share price is how many shares are issued to satisfy the funding that is raised. The only bit that is outside that consideration is what Ganfeng have to put in at the Project level - presently 22.5% of the (in my view) $270m balance of funding.
But there are not enough shares authorised to fund $210m (77.5%) at today's share price so there is something missing. For example (a) Ganfeng increase the project level investment to 50% - which increases their funding obligation at project level and produces another $10m for Ganfeng (b) the placing is done at above market price (as happened with Solgold) (c) Zinwald produces some funds from an IPO (d) lottery win (e) early visit from Santa
I am pretty confident that Ganfeng will have anti dilution protections in the form of a first refusal to take up any new equity issue - they would have been mad not to.
Zarro - I’ve looked through previous RNS’s and can’t see any reference to Ganfeng not being able to be diluted, think I may have just read it on one of the message boards and it stuck in my head
Zarro - I’m sure I read somewhere that Ganfeng could not be diluted during any equity issue. I could be wrong on that though. Dont recall seeing it in relation to Hanwa though so you would assume they would participant in order to maintain the same percentage
Davetherave - I think that is right but as they do not want to be diluted (and have pre-emption rights in their agreement) they will take up 30% in the placing requirement at the Bacanora level to maintain their 30% interest.
Extract from note 10 of the company's full year accounts states as follows:
"RK holds a fixed charge security over the shares of various subsidiaries of the Group except for Bacanora Lithium Plc, Deutsche Lithium GmbH and Zinnwald Lithium Ltd. RK also holds a fixed charge security over certain bank accounts held by the relevant UK and Canadian holding companies and Mexican subsidiaries. RK holds a floating charge over Bacanora Lithium Plc’s assets not covered by the fixed charge. RK holds fixed and floating charge over the assets of the relevant Mexican subsidiaries related to the Sonora Lithium Project."
R7632 - I think the bit about ganfengs 29.9% of BCN might be wrong. They are just investors who hold 29.9% of BCN so I don’t think they would be expected to pay 29.9% of the cap ex at this level. (Ps I know they are not ‘just’ investors as have expertise experience etc) but in terms of having to pay further costs at this level, I don’t think they are obliged too.
Yes they would have to pay 22.5% cap ex at project level increasing to 50% assuming they take up the option.
I think that’s right anyway
Funding Gap
If Ganfeng have 22.5% of Sonora Project BCN has 77.5% Of £420 Million == £367.5 Million
Then Ganfeng has 29.9% of BCN leaving BCN with 70.1% of 367.5 == £257.29 Million
Minus £150Million from RK Finance = £107.29
I understand Hanwa was to put in some more Million and £40Million in Cash ---
Leaves something in region of £50 million to find.
I thought the Oman Investement was about £65Million. So if could be re-signed no funding gap.
I have probably not understood the effect of the Ganfeng holding on the total project funding.
So looking forward to someone explaining this with a better knowledge of how this works.
Agree with most of what been very well said by Strangerstill and most certainly the sentiment. The bit I hold a different view on is where the Red Kite funding sits. As far as I am aware this funding is secured on the physical Sonora project assets - not Bacanora's ownership of an interest in those assets. If so, that would effectively make it is a liability of the project venture company. For that reason I see the funding requirement, and the proportionate obligations to finance it by shareholders, as being based on the number after deducting that funding; in the same way as if you were buying a property with someone else with a mortgage raised on the property you would contribute the equity proportionately based on the net figure - Ganfeng are not going to contribute their percentage based on the gross value when Bacanora's contribution is comes from funds raised against a mortgage on the Project itself. I really hope I am misunderstanding this or someone can correct me because obviously that makes the numbers even better. However, if I am right, the numbers would almost certainly suggest that Ganfeng expect/intend to increase their stake. Does anyone know the position for sure?
Post recommended......not positive, not negative, just the truth and I like it!
Ganfeng have not stolen Bacanora from the current investors. The cost of developing Sonara will be realised within Sonara Lithium and Ganfeng will have to contribute its share of the $420 million required to develop the mine. So if Ganfeng end up owning 50% of Sonara Lithium they will have to find $210 million to invest in the mine to retain their 50% stake. My guess is that Ganfeng will buy 27.5% of Sonara Lithium for about $10 million off Bacanora. They will then both loan Sonara Lithium $210 million each to be paid back from the initial cash flow of the mine. Bacanora currently have access to about $180 leaving $30 million to be found. The loan repayments from Sonara Lithium will be used to repay to Red Kite loan. Of course this means that Bacanora will only have 50% of the profits of the mine, but I would rather have 50% of the profits of a functioning mine than 100% of the profit of a non-existent mine.
If Ganfeng do not increase their ownership of Sonara Lithium then Bacanora could have to find another $145 million but would be entitled to 77.5% of the Sonara profits. Ganfeng have signed several supply agreements to supply Lithium to future gigafactories and therefore need to get Sonara built. Bacanora has given itself the ability to issue 500 million shares to cover all eventualities and possible to fund Zinwald, it does not mean that Bacnaora will issue all the shares.