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My understanding is that, regardless of fulfilment of the ‘other matters’ and the conditions of the term sheet BM retains the right to go elsewhere to fund this if he so wishes ...... from which we can conclude that he may ask Lionhead to sharpen their pencil.
Either way I can’t see Lord Falmer being impressed should a favourable deal be awarded to Lionhead.
What I would say is that there are many West African gold plays who would give their eye teeth for the level of support we receive from our two biggest SH’s not least in having a viable term sheet in hand.
Thanks. I agree on the alignment of interests point (as I said in my 16:04 post). I note that "The Quirk Family are potential beneficiaries of trusts that own around 34% of Cora Gold through Brookstone Business Inc and Key Ventures Holding Limited.". In the long run I am sure that their interests are maximised via CORA's SP.
It's an interesting idea that the term sheet might not apply though. I can see all sorts of potential problems were it to be re-negotiated on terms perceived to be less favourable for CORA's ordinary shareholders. My instinct is that such a re-negotiation would be inherently distributive, ie it would be hard to come up with a revised structure that benefitted equally the finance providers AND the ordinary shareholders. I guess it's not impossible..!
It would be interesting to know what the "other matters" referenced in the conditional statement below (from the term sheet RNS) are.
"This is conditional on, among other matters, the completion of a Definitive Feasibility Study ('DFS') on the Project before the end of 2021."
I'm not trying to pick holes. Just to understand properly where equity holders will stand if/when the Sanankoro and other projects prove to be hugely succesful.
I have had this conversation with BM (probably 4 months ago) and whilst I definitely do not speak for him I expect that he would say specifically with reference to the term sheet:
1/ The economics of the project when the decision to build is taken will determine the funding partner/method.
2/ The method/partner selected will be in he best interests of the company and ALL shareholders.
3/ Lionhead Capital (Quirk family) are well aware of a potential conflict of interest.
4/ BM has maintained a relationship with Coris. Bank (since HUM days) and suggested that they would be interested in pitching for Cora’s business.
If the current drill program continues to deliver I suspect the term sheet goes out of the window.
The Quirks/Lord Farmer are our biggest shareholders but rather than perceiving them as a threat I think what is good for them is good for me. Both continue to stand their corner in placings Neither want to be diluted.
All concerned will benefit from Cora being able to fund extended drilling and plant expansion from cash flow..... and BM is well aware of this.
That's the one StarBright - thanks. Just picked this up from the 15 May 2021 broker note as well:
"Valuation: TPI’s base case risk-adjusted equity valuation now looks too prudent
Today’s news adds further weight to TPI’s expectation that Cora’s new drilling campaign and DFS have potential to deliver
significantly improved mining economics for the Sanankoro Gold Project. TPI’s updated assessment for the Project that was
published on 18 November 2020, determined a base case DCF valuation of £37.8m, or an adjusted target price of 18.4p/share, based on the prudent assumption of a US$1,600/oz gold price while accounting for remaining geological and execution risks through an 8% discount rate, to which a modest £3.8m was added for exploration upside along with £3.8m then estimated free cash on the balance sheet. Right now, however, this appears to be excessively prudent noting, for example, should the model instead adopt the recently strengthened gold price (presently trading at US$1,777/oz), the risk-adjusted valuation increases by a further c.18%, before even considering opportunity presented through the Company’s Madina Foulbé Project (or Diangounte East or Yanfolila), whose potential has already been suggested by the large soil geochemical anomalies encompassing the prospect along with positive previous drill results. Having also been based on just a limited resource and a short three-year LOM, centring the new drill programme on opportunities such as Dako II, where mineralisation has been intersected up to c.175m at depth, highlights substantial upside potential given that under 25% of the prospect’s total 40km strike length has been drilled to date. Cora’s ability to continue progressing Sanankoro’s development toward mine site construction over the next two years, as well as continued execution of successful exploration programmes amongst its other prospects, will remain the key drivers of its valuation. In this respect, potential upside for Cora beyond its current risk-adjusted valuation was highlighted in a Research Update published by TPI on 1 March 2021, in which comparison was drawn with what is probably its most obvious albeit more advanced peer, regional Malian gold miner Robex Resources Inc. (‘Robex’, TSXv: RBX). Robex filed an updated NI 43-101 technical report containing the mineral resources/reserve estimates for its Nampala mine as at July 31, 2020, which resulted in the extension of its LOM to over eight years, despite achieving a head grade of only c.1.00g/t, compared with the 1.50g/t indicated for Sanankoro in its Scoping Study. With Robex’s market value having multiplied around 5-fold over the past 18-months following its delivery of best production expectations while also responding to an improved gold price, this performance presently awards it an enterpri value of c.CND$305m with shareholders also having benefitted from a dividend pay-out that implies historic yield of c. 7.8%."
Legalwolf - the TP note from 15/6 contains the following comment on exploration targets and potential NPVs...
"Potential value of exploration Success
At a gold price of US$1,750/oz the post-tax NPV8 for the project is around US$62.2m based on the oxide resource estimate of 233,000 ounces. Should Cora be able to increase the size of the oxide resource by 30% to 50% would we expect to see an increase in the NPV for the project greater than 30%-50%, c. (US$81m to US$93.3m), without taking into account any other potential economic benefits from a change in the processing flowsheet.
In the medium-term, should Cora be able to establish the lower-end of the exploration target, the project’s value could potentially be four-times as large, c. US$250m, and should Cora be able to establish the higher- end of the exploration target, the project’s value could be around eight-times as large at around US$500m.
Cora still has a large amount of work that needs to be successful before it achieves this level of value at the project, but Sanankoro clearly has the potential to be a very large deposit and could also prove to be very valuable."
Yes - the Quirk family are on both sides of the see-saw, to the extent that the financing package was disclosed as a related party transaction. I'm not sure whether their own outcomes are best suited by a higher or lower SP at the point(s) of issue. On balance, I suspect that all shareholders interests are best served by a strong SP driven by further "scintillating" drilling results. The existing shareholders also subscribed for equity in the June '21 placing. I am not deterred by the substance of the financing package as a result.
It would be nice to think that holders can sit back and wait for drilling results whilst adding on weakness. To get there it's important to understand the capital structure of the business as well as the drilling programme. I pretend no expertise on mining/drilling..!
Starbright - fair enough and sorry for misinterpreting, I think I saw that you'd highlighted the word *may*, which is what I was primarily referring to. Anyway, back to your actual point, you do make a fair point about the financing package and the potential conflict of interest. Not sure whether it represents the best deal for all shareholders, but I think there is a connection between the company offering the financing and a family of the largest shareholders at Cora.
I'll see if I can find it, but a broker note from last year talked about successful exploration, in terms of the exploration target of 1-2 million ounces, giving the Sanankoro project a potential value of between $250 and $500 million. So even anything approaching a million ounces (the lower end of the target) gives the project a lot more value than the original scoping study from 2020.
Legalwolf - I've not missed or ignored the recent drilling results. I'm just trying to clarify the impact of the (somewhat complex) mine financing package.
AG1989 - yes, 20% looks v reasonable. If the SP is higher, then - as you say - dilution will be lower. That does represent a conflict of interest for the providers of the financing package though. They will end up with a greater % if the SP is low at the point(s) that shares are issued.
V interesting....
Looks about right StarBright. Will have to have another read through it in thorough detail. I do believe the resource will be substantially upgraded and after the next 20,000m reported and a resource upgrade, the SP should be well north of 13-14p, meaning even less dilution.
But you can only base numbers on current valuations which is understandable. I’d take 20% dilution to take Sanankoro to production and generate cash flow moving forward. Parts of the feasibility study underway currently, a very exciting couple of months coming up here at Cora
I would say that you have missed or ignored the obvious and compelling significance of the recent drilling results. There is no *may* about it anymore in terms of the whether the 250k resource is going to be upgraded, you only have to look at the scintillating results to date to know that it obviously will be upgraded (and then some). The question is by how much, and the exploration target that Cora has is between 1 and 2 million ounces. If it gets anywhere near even 1 million ounces, then the maths will have to be done all over again. The broker notes make it all clear in terms of the calcs at the upper and lower end of the exploration target.
So the question is, do we think Cora is sitting on a (multi) million ounce deposit across the whole of Sanankoro? Based on the results we have had to date, and when you consider the recent Selin results cover only 700m of a total strike area of 3.2km, and other zones have been extended and remain open, the exploration upside at Sanankoro (and potential to increase the resource) is very clear to see IMO.
So if - in back of an envelope terms - the DFS was produced with the SP at 14p...
1. The equity financing component would lead to $6m / 1.4 * 13p = 33m new shares issued
2. The CLN could be be converted into $5m / 1.4 * [13p+30%=17p] = 21m new shares issued
3. The debt interest and royalty can just be considered to be annual/recurring expenses
So a total of 54m shares to be issued per the term sheet (effectively 20% dilution) for funding the $21m (£15m) cost of constructing the Sanankoro mine.
The Sanankoro project is NPV positive based on the current resource estimate of 265k oz, which *may* be upgraded by the drilling programme currently underway. AISC estimated at <$1k/oz. DFS is scheduled for late 2021.
What I have missed / misinterpreted?
Cluelesstim - try the RNS link below, hopefully that helps and gives you the information you need
https://www.lse.co.uk/rns/CORA/us21m-termsheet-to-fund-construction-of-sanankoro-kbv8nswncmyr8i7.html
Does anyone know the terms of the convertible bond that's referred to in the q3 presentation? Cheers