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While we wait for details of the divestment of telfer and havieron, there are a range of opinions on how this would be financed.
Shaun has previously expressed that there is an ideal balance of debt and equity. We have seen this in the financing of debt and equity for the 2 mtpa mine plan.
In this financing, the A$200m debt (facility A) was agreed with interest at an Australian BBSY benchmark plus a 3.50% margin. We also saw Wyloo's initial A$60m equity subscription with scope for a future potential A$60m equity raise through warrants.
At today's rates, the existing debt deal from the banking syndicate means roughly 4.37% BBSY + 3.5% margin = 7.87% interest on the A$200m debt facility.
Shaun likened financing to buying a house. In today's market, that means debt is not cheap. The general consensus is that interest rates will not return to the super low, super cheap debt days that have been enjoyed in recent memory. It is far more prudent in higher interest times to 'buy the farm' with more equity and less debt.
I believe a good deal for financing the 3 mtpa upgrade, telfer and 70% project ownership will mean we finance any divestment with the balance skewed more towards equity and less towards debt.
The recent rise in gold price is advantageous. Institutions will be giving more attention to upcoming development projects, so any bigger equity raise should hopefully attract more competition.
This may be more dilutive but to long term shareholders (or very new ones) this would offer the best upside for the overall project. I am keen to see what path Greatland choose to take.
@Malva
May I suggest full on debt first.
For the first 6 months to a year, maybe 2 at a stretch.
As we we will be the 100% owners of Havieron and getting gold out of the ground, the share price should hopefully be multiple if today's share price.
In my view it would not be to bad to issue extra shares to pay down on the debt at that point.
Yes, we will be diluted, but we will also have dealt with the debt.
Greatland can then later on always buy up shares when they fall below a certain price and that way around both help to stabilise the share price and reduce the numbers of issued shares.
I think that GGP has been negotiating with Newcrest for buying Telfer and 70% Havieron for sometime and now Newmont that is why SD has been improving his BOD and other bods before NEM came in the scene. The change in the debt facility was also negotiated before NEM TO of Newcrest. My feeling is the decision on Telfer/Havieron will come soon and should have been sooner if the ponds didn't start leaking and now the stop in production has thrown the spanner into the works so to speak. If the boundaries of the TO had been sorted but not signed then for sure GGP will want sureties on the additional cost of repairing the ponds and restarting the plant.
Don't forget NEM have to produce the FS and decision to mine which are contractual and would affect the TO price if not resolved.
The good news is my Storks came back to the nest after disappearing when GGP share price plummeted some 3 years ago so i presume the SP will now increase when they lay the eggs as they did before, fingers crossed. DM
I’ve often thought in the event of a raise Convertible Loan Notes may be one of the ways to go, alongside others - borrowing the cash from Wyloo or somebody and paid off/converted to shares at a later time.
Hi SocialistB,
I think the bank syndicates will require some equity for additional debt but I like your main point for being more debt heavy and paying this down faster with excess cash flow. A 50% cash sweep on excess cash flow is already agreed on and this instinctually feels like a good option.
Thank you for your post.
Hi Malva. I have always preferred equity over debt and with current interest rates even more so. Having said that, the idea of short term debt to get to production then an equity raise makes good sense. I am sure SD has all bases covered to achieve the best deal for all. ATB Speedy
Raising through equity effectively dilutes cashflow in perpetuity, raising through debt does so until debt is repaid. I have a strong preference for any raise to be debt heavy - not least as I believe cashflows will cover the interest easily and allow the debt to be repaid - or as we see in most companies, refinanced - typically, once a company is up and running with steady cashflow, only the cost of servicing the debt is reflected in share price, the assumption being that any loan can just be refinanced as and when needed.
Hi Matty. Not if stock is bought back with excess cash flow. Debt is ok with low rates but no one knows if rates will go into the teens or even higher. I am no expert on high finance but SD is and i assume he will do the best deal. ATB Speedy
Speedy - I hope at some point in the future we are able to buy back shares with excess cashflow (or use it to keep building out asset base), but you'd also like to think the cost of buying back shares would be much greater than the cost of servicing debt - certainly the case if this goes where we think it can. As you say, I'm sure SD and the team are all over the financing options - and equity likely a part of that as lenders will likely insist, but as a retail share holder I'd like to see the near term (1-3 year) risk put onto lenders, if things go as we hope we'll rue the interest payments but be more than happy with the impact of long term, undiluted, cashflow on share price.
Jeez Matty & Speedie, you don’t half paint a bleak picture for GGP going forward.
Firstly Matty, who’s shares are they gonna buy back ? Mine, yours, or just some imaginary ones that seem to be floating around inside your head.
Speedie you say “Debt is ok with low rates but no one knows if rates will go into the teens or even higher”.
All forecast are for interest rates to start to decline in the not to distant future, not as you portray, by going into the teens.
And let’s say you are correct, and they do go to say 10%, it doesn’t mean GGP won’t be able to service the debt. I think you may have forgotten what it was like to live before 2007/8 when interest rate borrowing was anything between 8 & 17%.
The very low interest rates that we have been accustomed to over the last 17years are not the norm as you well know, they have returned to the mean average of what they have been historically for quite some time, and you more than anyone else here should recognise that fact, especially when for as long as I can remember, you have been stating that the POG would go parabolic if gold returned to the mean average of peoples investments.
I stated some weeks ago that I won’t get drawn into any discussions regarding what the future of GGP entails, until I here it from the horse’s mouth about what the BOD’s plans going forward are. All this speculation about the if’s, but’s & maybe’s serve no purpose at all. It’s akin to the old proverb “If my aunty had balls, she’d be my uncle” !
I just don’t understand why so many of you get your knickers in a twist over things posted here, that haven’t come from the management.
There’s a time to act & react, but right now it’s not that time. Until news filters through to us shareholders, there’s absolutely nothing to do except be patient, unless of course you believe in conspiracy theories, of which a few here try to convince you they exist.
Nothing like a 'Word Soup' essay to concentrate the mind?
Re: Buying back shares?...what would that be for then?
Only case in my mind for that would be a saving on paying out dividends, no where near that stage as of yet , many hurdles yet to be got over before that happens, it at all.
Overall, I personally prefer debt rather than even more share dilution.
Before that happens, IF at all.
Spade - not bleak at all. I think you missed the point, which was for any future funds raise, of which there will almost certainly be (that's not a bad thing btw), my preference is for that to be weighted towards debt rather than equity. That was all.
Jiffy - share buy-backs are what lots of companies do when they have excess cash - they buy shares on the market (i.e., take them off the market) and that means fewer shares out there, higher value for remaining shareholders. It's a good thing.
Matty,
Yes agree, except the principal reasons for those whom are pursuing such strategies ie Shell, et al, is to make a saving on paying out dividdends in the main, I would strongly suggest.
Jiffybag.
Agree that we're some way away from deciding what to do with any profits, however would suggest that your views on share buyback are a little cynical.
The raison d'etre of publicly listed companies is to improve the value for its shareholders.
This can be achieved by either distributing profits via dividends or by improving the share price....or both.
A share buyback scheme would normally require the prior approval of shareholders and, it would benefit shareholders in two ways:
Firstly, all other things being equal, a share buyback should improve the SP. A 10% share buyback should improve the SP by 11% as the same market cap is now covered by the remaining 90% of shares.
Secondly, any future dividends which are distributed should be greater (per share) than if there were no buyback. In the scenario above, future dividends should increase by 11%.
IMO, share buybacks are not simply to reduce dividends.
ATB RA
Further to my previous. Before the naysayers get in with their doom and gloom.
I indicated that the SP should increase as the buyback is performed in order to reflect the increasing share proportional holding for the same MCAP. I do recognise that as the cash is reduce to perform the buyback then the MCAP should also reduce and therefore, the buyback should be SP neutral.
However, the buyback will likely reduce free float and therefore improve strength of demand abd it will also improve the future dividend per share..
ATB RA
Can’t see the fuss. Authorities renewed at AGMs. Won’t have anything to do with terms on which any funding is raised, though there for later use if appropriate. In passing, it’s about the only way shareholders can own a bigger slice of the company without buying more shares - something Mr. Day may have been alluding to at one of the town halls which I think caused minor confusion on here.
Share buy backs are a multi faceted tactic.
It reduces the number of shares in issue. This should recalculate the value by spreading the same market cap over a lesser number of shares.
It uses some profit that would otherwise be available for dividends/investment in the business. This is tempered by the expected increase in value of the remaining shares.
I do not have enough knowledge to gauge if there is any tax benefit (or cost) to the company, but for PI's it will exchange some (taxable) dividend income for (only taxable if realised) capital gains.
It may have an effect on liquidity. Assuming that the II's generally see buybacks as positive and hold onto (even increase) their holdings, then the buybacks have to come from the market, thereby reducing the number of shares in the (more liquid) pool of private investors. This, in turn, can feed into increased value. Of course, if the company can negotiate a block purchase from an II, then this may well increase liquidity and reduce value.
Consideration should be given for a consolidation before a buyback scheme is implemented.
Generally, I would love a defined buyback scheme being introduced. it would encourage me to (at least) hold and likely to increase my holding.
Newmont are an example, mentioned in Q and A’s. Reduce debt by these divestments, and improve shareholders eps by 1bn. dollar buyback ( though I think that latter may still be under review )
Hi SAS. You need to screw your neck back in. This is just a debate about the possible funding routes that SD could take and at no time are we painting a bleak picture. I am convinced that gold is going higher thereby increasing profits when producing but we are not yet producing and will need funds to buy back the farm. Not much else to discuss at the moment while we wait for news. ATB Speedy
It’s pretty apparent that a good result for acquisitions and up to 100% capex for more than the market cap for a company with no cash to speak of and no income, would be to get the cash and pay for it after commercial production occurs. It’s maybe a tall order.
The ‘heavyweight’ board has work to do.
Morning Speedie, I concur with what you say regarding the POG, and hopefully making greater profits once producing. But what I was disagreeing with, was your mention of possible interest rate rises, which of course would burden us if they were to ever happen.
All I was trying to say was that even if they did increase, then just as folk shop about for a cheaper mortgage deal, then so do businesses, or at least they will try to negotiate with their current lender a better deal. Upto now I don’t know the terms of which the borrowing was undertaken, whether it was at a fixed or variable rate, but one thing I do know, is, if the POG remains at this price or as you and many believe, goes onto new ATH’s, then it shouldn’t really make any difference if the interest rate does increase a couple of percentage points, as gold will have risen a whole lot more.
Hope that clears up why I posted what I did. It wasn’t because I was having a dig, as for the many post you write I agree with. It was just your mentioning of possible interest rate rises continuing, that I took umbrage at.
ATB
On price of gold, one might consider that the original bank prospective lenders, also subject to FS criteria, required some gold price hedging to protect repayments. I can easily imagine similar requirements for more cash from them. It should not prove onerous during full production.
Hi SAS. I have seen many many Cos fail due to too much debt. Taking loans with discounted rates only to be sent into insolvency when higher rates make servicing impossible. This is not really a problem for GGP, if debt is the route, as the loan should only be short term, but best to be cautious.
Higher rates are a headwind for the POG but there are so many other tailwinds that the direction for the POG is much higher from here. ATB Speedy