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Myo, yes, milestones on the critical path (i.e., the two deep shafts and the tunnel) are more important to bring the project ahead of schedule. Other milestones are much easier to manage and as long as they are not delayed they would not affect the whole project. However, if we want to bring the whole project ahead of schedule (e.g., earlier production and a completed 10mtpa mine before the end of 2024), other pieces are also important.
Fitch and S&P Global have made it very clearer in their rating reports on the conditions for rating upgrades:
Fitch would raise its rating if "Proven ability to successfully produce and market polyhalite";
While S&P Global would raise its rating "if construction advances ahead of schedule and under budget and if highly certain sources of funding exceed total remaining cash requirements".
Most of the items I put on the list are derived from the indications provided by the two rating agencies as mentioned above.
What they see as a fair discount to NPV, no more afaict.
GK.
Yes, all that is very logical Cherokee but Liberium must base their bullish predictions on something - maybe its just sentiment.
Some fund managers allow for special situation plays in their mandate, so they will be able to invest a bit. The issue is, the vast majority of managers screen their universe of companies based on traditional metrics - free cash flow being absolutely crucial.
You may get Venture Capital PE funds having a nibble however.
The credit worthiness of the lender would also play a big part in reducing risk for the project - JPM have a very stable long-term issuer rating of Aa2 with Moody's. Rather like the Government guarantee that failed to appear in time.
Cherokee - Yep slip of the keyboard
Myo
With the bond issue maybe they will get one anyway.
But it will reflect on SM's credit rating and as that rises so will the attraction to institutions of investment in SM's equity.
I had always assumed that the institutions would wait until first production before they invested heavily here but maybe we can expect then to start investing here big time after the funding release.
This could account for house broker Liberum's very bullish 40p price target.
You can't change a "coupon" on a bond after it is sold.
The yield changes all the time because it is relative to the price.
I don't imagine that the rating given to bonds will change retrospectively, otherwise you'd have high rated bonds with junk rated yields. Afterall you can't change the yield on a bond after you've sold it.
It will mean any bonds sold in the future will be able to have lower yields though
So can we assume then that when the funding from JPM is released by the successful sale of the bonds that the credit rating of the bonds will rise?
If this is the case it may encourage more institutional investors to purchase SM shares in the equity market?
As we know that the JMP solution is an equity guaranteed, RCF supported high yield bond solution. The equity ($0.2b + $1.15 + $0.85b) raised in pre-stage 1, stage 1, and the first part of stage 2 (and the mine assets generated by the equity) provided guarantee for the high yield bonds. The JMP underwritten RCF provides flexible findings and more time for SM (with the help of JMP) to sell further tranches of high yield bonds.
A Rising Star in the bond market is a bond issuer that has its credit rating continuously upgraded and therefore becoming very popular in the bond market. Starting from a solid B rating, SM has the potential to become such a Rising Star.
Numerous construction, financing and market milestones may trigger a series of rating upgrades:
- Reaching the First Polyhalite at the shelf beam using the SBR in 2021 (ahead of schedule) in either service and/or production shaft;
- Reaching the bottom of the deep shafts safely ahead of schedule;
- Tunneling (completing all the 37km) ahead of schedule using the TBM;
- Completing the shafts and tunnel within the budget (not cost over run);
- MTS fit-out ahead of schedule;
- Mine head building ahead of schedule;
- Confirming polyhalite reserves at the seams;
- MHF ahead of schedule;
- Port facilities ahead of schedule;
- More sales agreements/sales partners;
- Funding raised (plus generated by the sales) adequate for completing the 10mtpa mine;
- Funding raised (plus generated by the sales) adequate for completing the 13mtpa mine;
...
Given the big progress SM has achieved, all the above mentioned sub-goals seem to be highly achievable by the SM team and their experienced contractors/collaborators.