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With the final redemption of CLN’s awarded to Duferco, as part of the deal for the purchase of Vanchem, approaching fast I thought it would be worth revisiting the details of the deal hopefully summarized below.
BMN agreed a revised purchase price of $57.5m with $30m cash paid on completion, $2.5m deferred and CLN’s issued for the remaining $23m.
50% of the CLN’s were due for redemption on the 7/11/20 and the remainder on 7/11/21
BMN have negotiated to settle both redemptions with $5m cash and $6.5m (£4.7m) in shares The RNS dated 18/12/20, regarding the first partial payment of Duferco convertible loan notes, shows that a total of 37m shares were issued to Duferco
If the second redemption of $6.5m (£4.7m) is redeemed in shares at an average SP of 10p, this would equate to a further 47m shares being issued to Duferco and increasing the total shares in issue to 1.24b giving Duferco a total holding of 6.8%.
Looking back at the RNS for the end of the 2019 financial year it is shown that there was an independent valuation of Vanchem carried out to establish, under IFRS 3 rules, a Fair Value Calculation of the assets purchased from Duferco. This resulted in the assets being re-valued at $118m and a “Bargain Purchase” adjustment of $60m added to the company profits for the year.
Had BMN agreed to pay the “Fair Value” for the assets at $118m (£87m), this would have required an additional payment of $60m (£46m) which BMN did not have and would have required expensive financing or a share placement at the time of purchase, which could have resulted in 230m shares at 20p being offered to the market giving a dilution of 18.5%. This, together with the dilution from the CLN redemptions would have resulted in a total dilution of over 25%
Duferco must surely have realized the true value of Vanchem and appreciated the vast potential for BMN, particularly with the inclusion of Vanchem. Did they agree to sell the business cheap and accept CLN’s knowing that they would recover way more than the loss incurred on this deal, and has the BOD been happy to hold off on any news to allow Duferco to realise a higher number of shares.
There is a concern among some investors about the low value of the SP and how Duferco are going to benefit from this but, if you consider the above, shareholders may end up with a 6.8%, or less, dilution whereas they could have ended up with a 25% dilution if Fair Value was paid for Vanchem. Also, consider that if Fortune had not been able to negotiate this deal then Vanchem would not have been part of the Bushveld group, which would have had a very material impact on the future performance, and share price, of the company.
I believe that this was another masterstroke by Fortune to protect shareholder value and I also believe Duferco will retain their shares, until they reach at least £1, to recoup the $100m (£72.5m) shortfall between the price they paid in 2008 for Vanchem ($160m) and the price they sold to
Pickler that is a very thought provoking idea.if there is substance to it then November could be a very interesting month.
We do need to get rid of the GSA Capital Partners crowd.
Even ignoring the new valuation of Vanchem.
Don't forget the discount FM managed to get a few months after the initial bid which was about $14.5m.
This should compensate for any less attractive deals we have to do now to get over the line. Like Pdub said the dilution from Duferco is paltry compared to past deals and warrants.
As previously notified on 23 October 2019, the total consideration for the acquisition was reduced from US$68 million to US$53.5 million, of which US$30.5 million was payable in cash (US$30 million on closing and US$0.5 million after two years) and the balance (US$23.0 million) would be satisfied through the issue of Bushveld Minerals unsecured convertible loan notes. The Company is pleased to announce that:
@Pickler: intriguing and impressive analysis. I have been offering my own thoughts that FM has been intentionally down- playing the progress of BMN for some unknown reasons, and your suggestion offers a very plausible (IMHO) logic behind such a strategy. I re-iterate Pdub's comment that... "if there is substance to it then November could be a very interesting month".
Cordially
Lionel
Pickler - go and read carefully the 2 RNS's that were issued on 2nd Feb 2021.
Duferco started selling down on the same day that they were issued the shares ie 24th December.
Mogwhy, That doesn't mean that they are going to do the same with the next tranch.
@mogwhy - so could Duferco now be a seller again of their first tranche of shares, just enough to hold the SP down long enough for them to maximise the next batch of shares heading their way?
Hi Mogwhy - I have looked at the RNS’s you mention and they clearly show that Duferco sold 2m shares at that time. However, this was to reduce their holding to less than the reporting figure of 3%. Do you have any proof that they have continued to sell their remaining 35m shares, like a Bloomberg screen shot showing the entire shareholding in Bushveld?
Pickler/James0309 - we don't know if Duferco sold their entire shareholding because the second TR1 took them below the 3% threshold for reporting.
The funds required to purchase the stake in EHL was an unknown amount so we don't know if the 2m sale was enough to cover it. It seems unlikely to me.
If they held some back to do what you suggest then that makes some sense of the current low share price. The GSA short doesn't make a big difference imo.
DBB - I realise that, but it creates uncertainty in the market if folks think that they might sell down again. Many will take the view that history will repeat itself. A $6.5m overhang will not make for a happy xmas.
Mogwhy - It could be an overhang or equally possible that they hang on to the latest tranche on a longer term basis and allow the SP to rise. There is uncertainty, so TR1s will perhaps reveal their strategy. Personally I would not be surprised if we see another pair of TR1’s after year end showing they have dropped below 3% again.
Just to add to this, for some reason I thought there was an orderly market clause in play, but from memory last year this did not apply, based on the deal that was agreed and executed?
After further reflection, I now tend to think that Duferco sold their entire 37m shares earlier this year.
I think this because at the time they received their shares, they also received $6.28m in cash. It seems unlikely that the EHL share purchase by Grafton was more than the cash element so there would be no need to sell down the BMN shares to fund it.
Whether they needed cash for something else or they just didn't want to be a BMN shareholder is something we'll probably never know.
Apparently Duferco are building a $180m steel plant in Italy with a $72m loan so they had a need for cash earlier this year which would explain the sell off.
Now seems likely they will sell their new holding next month. Hope I'm wrong.
Mogwhy you were asked if Duferco sold their entire holding ie you had evidence.
Clearly you don’t so responding by saying you think they did but unable t9 back that up is really nothing more than guess work. In other words it is equally possible that they still hold all or some of the remaining shares.
As far as GSA Capital Partners short is concerned I think you are very wrong. The several million shares they have borrowed is more than enough to manipulate an illiquid share if the will is there, particularly by recycling the short.
Of course I am happy to acknowledge that this is just my opinion.
The Duferco CLNs are a drop in the ocean and it really is tiresome that some keep banging on about it.
Also Mogwhy you ignore the fact they have to hold for 6 months and then if they do sell they have to do so in an orderly fashion .....
Pigpen70 - the 6 month lock in wasn't a requirement on the previous conversion as far as we know. If it was, then it was ignored on the very first day they received their shares.
The conversion next month is being renegotiated so we don't know if there will be a lock in or not.
Pdub - the several million shares that GSA have sold is small fry compared to the 65m that Duferco will shortly receive and potentially sell. That's what I find potentially tiresome.
It's all very well looking on the bright side, but I prefer to balance up the risk/reward by looking at potential downsides as well.
Mogwhy - unless someone can produce a screenshot from a Bloomberg PC showing the total shareholding for Bushveld, we are all guessing as to whether they still hold.
In your last post you mention them getting 65m shares next month, that assumes a share price of 7.2p based on a CLN worth £4.7m - I think you need to revisit your calculation.
I am a relatively LTH but with small holding compared to most. I have a request to make of the old guard that frequented this board such as Alfa, Nick D, BBN, and others, could you all return for say just a month? Probably an unfair request but I think you all look in now and again and I think your wisdom would be very much appreciated by most. As and when you think appropriate.
Come on Pickler, read the last RNS.
"the remaining US$6.5 million being converted into Bushveld shares"
Come on Mogwhy
$6.5m equates to £4.7m which equates to 47m shares at 10p
Mogwhy, The shares are in gbp not usd so more like 47m shares to be issued not 65m.
Sorry Pickler, my bad.
Absolutely
Yes Mogwhy that is true but….
A few million borrowed shares, recycled, in a determined bid to drop the share price can do a lot of damage … and it has.
The shares that Duferco will receive under the current arrangement ie $6.5 million and likely to be around 4% (perhaps a little less?) and the important difference is that Duferco will own those shares and would benefit from an INCREASE in the share price.
I don’t understand why you are single handed trying to stir up such fear in the market about this IF you hold shares and haven’t sold out. If you have sold and are looking for re-entry at cheaper price then I get it.
The bottom line is this is a small dilution that has helped acquire Vanchem at a very cheap price. Let’s have some balance in considering this and a little less negativity.