Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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Another session done.
The wait goes on!!
One day we will get the news we crave.
Hope I'm still alive.
GLA
Twig truth is, no one knows,as you say could drop back to
40 p or could jump to 2 pound and drop back to 1 pound,,its all just about maybe this or that,untill we have more details we are all pondering.But nothing would suprise me whatsoever,hope its what we all want at the end.
I agree with the part about how there may well be a royalty payment ongoing rather than simply a full cash payout.
This part though is flawed:
"IMHO for a dividend as low as 10p you could expect the equivalent of a ramraid to acquire shares up to the point where the risk/reward ratio is no longer attractive. And I’d suggest that spending £1 to get £1.10 back in a few weeks is highly profitable if you’re investing large amounts. It’s as close to free money as you get."
They wouldn't get £1 back as once the dividend is paid then the share price would drop back quite a lot so they may end up paying £1 to get about 40p back.
Well trick ,was thinking along similar lines and just discussing with my son,how uncanny,but yes not amillion miles off what may be about to be unfolded,wonder how many others have also been thinking along these lines,?
Not a bad prospect.
Lets hope so.
All IMHO, but my thinking went like this:
If there is an asset sale (rather than whole company sale) it could be for cash, for cash plus royalties, or for cash plus shares (which would lead to ongoing dividends – think NorNickel and Russal).
If the asset is as large as it looks, it may be beyond the means of most to stump up an acceptable full value on purchase so a deal involving upfront payment plus contingent value payment may be on the cards. This would lead to a 2 stage rerate. The share price could be expected to rerate around the expected value of initial payment special dividend plus forecast dividends. Once the Special Dividend is paid it would rerate again due to the value that has left the company and the forecast dividends being less certain.
If the forecast is to extract £2.8bn of value a year from the ground and EUA get a royalty payment or divi of 10% that’s 10p a share every year on the current number of shares. And the initial payment could be £2.8bn, £5.6bn (£1 or £2 per share, we don’t yet know). The market would make its call on what that means for the SP, both before and after the special dividend. All pretty standard.
Now the interesting bit.
However, if you are a Special Situations fund or the like, and have 10 million pounds you want to invest at the best risk/reward ratio you can get, and you know that EUA is promising a 10p dividend to shareholders holding shares on a certain date of record, wouldn’t you invest?
De minimis, if you buy the shares the day before the date of record and sell after the ex-dividend date you’ve made 10p on each share in a very short period of time with almost no risk. Even if the shares you buy are £1 each, you’ve still made £1,000,000 risk-free in a matter of weeks. Our SP is currently 28p.
HOWEVER
Every other Special Situations fund and other IIs looking at this have exactly the same idea. So they all have to buy the shares the day before their competitors to avoid the SP rise. Therefore the announcement of a special dividend would be like a starting gun being fired.
IMHO for a dividend as low as 10p you could expect the equivalent of a ramraid to acquire shares up to the point where the risk/reward ratio is no longer attractive. And I’d suggest that spending £1 to get £1.10 back in a few weeks is highly profitable if you’re investing large amounts. It’s as close to free money as you get.
If the Special Dividend were £1 it would be closer to a nuclear arms race.
Anyway, that’s my thinking and we’ll see soon whether it’s right or not.
DYOR always. Don’t take my, or anybody else’s, word for anything.
GLA
Tr1ck
Dore123 - just to correct I think the sale part was substantial and the dividend significant. However according to a legal definition I came across:
"The word 'significant' often means something less than the word 'substantial'. But in context it can mean 'substantial'. ... These words are often used in legal documents and care must be taken to use them correctly in the context......"
So, taken in context let's just hope they both really mean significant AND substantial. I'll take either, anyway or both! lol.
Hi Trick, when EUA is generating profits, then we will get a declared dividend based on the profit. From memory, average dividends in this sector are 8.6%, therefore to receive a £0.10 dividend, the SP is likely to be +/- £1.16. A special dividend would get paid out of the partial sale proceeds of the assets. The SP will rerate when we know details of the deal, hopefully before the AGM.
GLA
Trick, I'd love you to explain your logic of this jumping up to 100p on the basis of a 10p dividend.
Let's say for example you owned 100k shares at a current SP of 30p (for arguments sake to make maths easier)
You'd currently be holding £30k worth of shares of a company with roughly £1bn MCap
EUA then sells off a sufficient amout of the company to issue a 10p divident so you'd get a £10k payment.
The SP of the company would be unlikely to rise because of the size of the company would be less than before due to the assets that were sold off. It would be more likely the SP would drop to 20p to account for the 10p that had been paid out.
I can't see a scenario where a 10p divident due to an asset sale would boost the SP.
I think we could all do with a numerical example on what you mean here Trick
Decent point that EUA may continue to exist to largely collect royalties after assets sold.
But if the asset is a large as is being posited, can anybody afford it outright or are we looking at an asset sale with a contingent value element, e.g. $5bn down and xx% royalty.
In that case the immediate rerate should be on the value of the divi and the settling point after the ex-date based on the ongoing income.
There may also be tax reasons (personal) why it could be useful not to realise the entire value within a single fiscal year.
DYOR
GLA
Tr1ck
Tr!ck I think you're misunderstanding what will cause the SP to re-rate. It's not the announcement of any dividend, it will be the announcement of the sale of assets for £xxx.
We have to have the details of the recommended sale/ offer first. If that is, say, £5bn for WK/MT+ surrounding licences, subject to a Rule 15 vote in three weeks time, the share price will not sit at an MCap of just £750m - it will instantly re-rate to near that £5bn valuation. As with other T/O or Major Asset Sale announcements, once the offer figures are known, the market will react.
Any dividend will only come out of the proceeds of sale, further down the line. It will need to be announced, yes, and we may see a bit of SP movement then, but the MCap will still be bobbing around that £5bn sale value, reflecting basically what will be cash in the bank.
Hope this helps
Thanks Jambo but I have.
And given how much I’ve already made from the wonder that is EUA, that I’m on a free ride, and that I still have millions of these little marvels, I’ll stick with my thesis and IMHO even a 10p dividend causes a major rerate of the SP simply because it offers a risk-free return to IIs.
No need to do anything just now. We can sit and wait and see who’s right.
DYOR
GLA
Tr1ck
Trick
I would suggest you do your DYOR as you seem to have no idea how all things being equal a company SP works on dividends. THEN take into account what could happen specifically to the EUA sp when the unknowns become known ( that will happen at the same time as any dividend is announced)
That’s my point.
SP would jump as IIs saw the chance to make a risk-free 10% - or more if they buy in early-, some shareholders would choose to sell at different target levels as the price rises, SP would rerate up to the record day, there would then be a further readjustment as some sell out having bagged the dividend, and finally it would settle at a price based on the expectation of future dividend income and behave like a ‘normal’ share.
So I would expect even a 10% special dividend to cause a major repricing.
DYOR
GLA
Tr1ck
Thanks Jambo
But I’m on a free ride here now, it’s about a 40 bagger for me on Fridays close and I have millions of them.
So I think I’ve done OK on this one so far.
DYOR
GLA
Tr1ck
Trick , seems to me you think the company is just paying a dividend and not how the dividend would be financed.
Then again, even if the dividend was NOT dependent on a sale of assets, why on earth you would contemplate a 10p div could generate a rise like that is totally and absolutely illogical.
You need to get some basic understanding of what is happening here and I really mean that so you can manage your expectations and make the right decisions.
"Couldn’t a 10p divi rerate the share price to £1 ..."
No, 'cos who would wait for the dividend payment? If you had 100k shares and the SP went up £1 on news of a 10p dividend, well, you'd just sell your shares at £1 and get £100k ?
SP would go to current SP + dividend payment (roughly) - assuming it was a one off dividend and not an asset sale.
More complicated here as we don't know how much we're selling and how much we're keeping
Well that depends on the reason for the dividend I suppose.
The dividend we are waiting for is for the sale of some of the companies resources. Once that is done then the business is worth less so if they give us 10p in return for 75% of the assets then I would not expect a rerate at all.
Rerate to 10.1 p maybe
So here’s the thing.
Wouldn’t it be likely that even a promised lowly 10p dividend would lead to a major rerating of the share price.
If the Board announce a dividend and the date of record, then wouldn’t you expect high interest from IIs and Special Situation funds to buy heavily with the intent of catching the divi and selling after the ex-dividend date. Couldn’t a 10p divi rerate the share price to £1 if the IIs know they can make a safe 10% return in a few weeks.
DYOR
GLA
Tr1ck