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Price of gold makes Dugbe viable. Does not appear to be of any value in current SP.
Wonder if it is worth anything? RNS seems to suggest it is more than on the radar.
Seems that it was on the radar
If we announced we were going alone on Dugbe it would have killed our SP. we always needed help as Dugbe huge!
Dugbe has been forgotten about but now it moves forward without a debt hanging over us.
Great result for us!
Great result for Betts.
Not for the first time this BOD has completely rode roughshod over PI’s, I’m disgusted but not surprised
Great news, this is now fully funded at no cost to pre mine build. Place value on that market makers!
By which time In 2 years we should be well on our way to fund our share of the build cost through our cash cow mine.
Brilliant work dan betts!
Ps: who are all these posters slating the deal, never seen them post on this board before lol
Hi SlickHarry!
If you don't recognise the names of the Colonel and Barnaberible, then you really haven't been paying attention here!
Happy that I still have my shares in Hummingbird.
Dugbe has always had its risks. Although a large resource, very low grade and so needed a partner to burden some of the risk to bring it to fruition. Gold now at a much better price per ounce and looking to rise in the future for many reasons most on here will know, has presented this opportunity and investors will benefit. I for one am happy with the news.
Mixed feelings, I can certainly understand why they did it. 51% of something is better than 100% of nothing. Better to get this to the point where a mine can be developed, than not and maybe the mining concession heading towards the point it is not renewed. There is also value from fresh competent eyes driving it, and not distracting the BOD on another project. There is also no financial risk or dilution to HUM shareholders, and they probably want to get on with things which this does.
49% does seem a big cut off the project, that said it reduces our risks and also the cost of building a new mine, both from the DFS and also when the mine is being constructed. In the short term, there will be no shares issued (no need on this deal). In the longer term we give up some upside to the project, but it is now heading to production at no cost hopefully in time to catch a high gold price window.
I totally agree that we could never have devolved this ourselves. However, rather than choose a tiny company that we have no knowledge of and is likely to need financing, they should have gone to a mid tier. Once the DFS is done this company will not be able to finance the deal themselves. So all we have done is give away 49% of Dugbe, of which 39% went to 3 directors. I am a significant shareholder here with over 3m shares and I simply will not site down and take this kind of blatant financial engineering that favours directors. At the very least HUM directors should hold a web conference to allow shareholders a forum to question this deal. I have written to the Company in this regard. If they fail to do so I will ask the FCA to investigate.
Ordinarily I would completely agree with the last comment aw, but on this occasion the tiny company is led by some real big hitters who have significant contacts in the industry. I'm willing to guess if they say the project is a good one after doing the exploration work then project finance will be forthcoming.
Mixed feelings. did we just write off 12 million to covid yesterday yet sell half of dugbe for 10. Sorry folks still getting my head round yesterdays RNS
If ARX has borrowed or will borrow the 10m and we end up with 51% of the company then the actual sale proceeds are only 4.9m for 49% of Dugbe. I would like to know what the 3 directors paid for their 19% of Dugbe. Why did they not buy HUM shares instead. This is absolutely appalling behaviour.
Agree
My view for what it’s worth:
1) HUM have made an agreement with some serious industry names for them to buy into a (large) minority stake in Dugbe
2) ARX is a cash shell but, from my read, unless they secure the capital they don’t get their stake not their non-refundable deposit back. I doubt they would have made this agreement without confidence in raising the money
3) ARX is run by very credible names and the management team have co-invested with them to demonstrate their confidence in Dugbe. Again from my read the managements reported stake in ARX will be diluted by the new money, so it’s not like they are really getting a see through 20% but depends how much of their money they are putting on the line - I doubt it is £ms
4) there is no way HUM shareholders would have tolerated 100% investment in Dugbe and there was increased risk that it simply withered on the vine. The Gov of Liberia won’t tolerate no progress for a protracted period especially having spent political capital on the license.
5) the announcement says that a) this was market tested, b) leaves HUM in control at 51% and c) the NOMAD has signed off on the related party transaction (while I’m not naive enough to believe that copper-bottoms it, as part of the fact pattern, it is helpful as they know they need to get this right; so
6) I see this as positive. Cash cow production from Yanfolila not being diverted into the sacred cow of Dugbe, 3rd party investors demonstrating the attractiveness of pursuing Dugbe and we still have 51% of a potentially enormous gold resource, made more economic in the current good climate.
7) I doubt the share price will react positively to this in isolation and the big issue for me on the results yesterday was that it gave absolutely no clue as to what they WILL do with cash flow from Yanfolila (the board had the opportunity to set out a capital allocation policy), but this is a step forward, not back.
Err no the sale + commitment are $10-12m for 49% of Dugbe, whether they get a loan to cover this or a private/ public equity raise makes no difference - it doesn't suddenly mean they're paying $4.9m for 49% of Dugbe.
As a shell company with no assets not sure who would loan them $10m, so means they already have the funds or will need a very large equity raise, meaning huge dilution to ARX.
However that doesn't detract from some other key questions here: how much did 3 directors pay for their ARX equity - why did HUM keep stating over and over again they've spent $70m on Dugbe in their slidepacks, yet effectively sell 49% of it for $10-12m. I'm playing devil's advocate and never been a huge fan of Dugbe so $25m valuation for it seems about right (pre DFS/BFS, huge work to be done, Capex intensive, logistically challenging, Liberia, low grade etc.) no matter how much was previously spent, but do need answers. I hope more people turn up to the AGM than the last one (assume will be Zoom or some such with COVID19) - I appeared to be the only PI last year!
Agree OL. Let's also remember Liberia Government have 10% free carry and there is a large 2% royalty on project for Anglo Pacific Group PLC.
So for $10-12m, ARX get 49% of 90% (44%), valuing Dugbe in its current form at circa $27m - seems about right. Doesn't matter that "Intangible Assets" in books are deemed to be $65m - no one would pay this. Only way to get additional value would be to go it alone and for HUM to spend the $12m itself to get it to DFS stage and then try a farm-in again at the more advanced stage. You may get more, but you've spent some $12m extra and diverted Project Management & Engineering Resources away from Yanfolila + increased G&A.
A bird in the hand is worth two in the Bush (horneythologist)
Dugbe has not helped SP in last few years, it has cost money.
51% of something is worth more than 100% of nothing.
If these professionals with past experience get gold out of the ground ,great.
If not , we get to keep the deposit, great.
I suppose we just carry on as a cash cow, Q2 appears to be going well.
Aw2414
If they put in cash and we put in the asset, then the deemed value of Dugbe is $20.4 million and we retain our 51% of the bigger number.
The spend of that $10 million, used wisely as planned, should generate a project that has real value for HUM: even if they do not ultimately proceed, the project will have moved on at no cost to us.
It does look as if we have gone for experience in all the relevant skills: we have managed to attract the "big boys" albeit not in the conventional way. Their interest, particularly the additional exploration intention, does indicate that this could be a major project in due course.
I really hope that they can confirm this deal, which is much better than that struck for CORA, where we only ended up with a third and further dilution from exploration etc.
If they were to list that company on AIM to raise the $10 million, how many of us would invest?
At least we know why Dan hasn't been buying shares in HUM hand over fist, hes been savi6his pocket money up.
Otho, thank you for your well thought out and balanced post. My immediate reaction is the proposed arrangement is an excellent start to monetising the $72m of intangible assets on the balance sheet at little if any risk to Hummingbird. Keeping the majority stake in the venture as well is better still. Of course this is just the start of a long journey with no certainties of eventually a large operating gold mine at Dugbe. Your final point about the current lack of public plans for the capital allocation of the current operating free cash flow is well made.
This is a very interesting development to say the least. At face value, it looks questionable. However, rationale is clearly stated: “allowing the Company to develop other prospective strategic opportunities to capitalise on the platform we have built through the exploration of potential M&A opportunities.” (i.e. ARX cover all costs at Dugbe, HUM spends elsewhere). This raises 2 main things for me:
1) We are pending updates on other opportunities. Whether that be extended LOM, Cora, or other. This will all take investment – hence why net cash positive was stated as end of 2020 rather than this month (let’s see on that one!). I’d also expect these to be more near term and therefore value accretive to SP.
2) To engage in Dugbe & above (as of yet indefinitive) other opportunities would require a prohibitive amount of capital.
Therefore, management viewed a form of JV structure as the best option.
I can only assume that mgt views these “other” development opportunities as manageable in a minimal dilutive sense. Whilst we linger at <30p, the last thing we want is dilution or a large debt package. It’d wipe out current shareholder value and that is our (my) priority.
My hope for this is that ARX can cover all development costs for the next 2 years, during which time HUM is able to rack up some cash & expand via it’s other smaller/local opportunities. 2 years from now (assuming gold still >1600), I’d like HUM MC to be at least a multiple of where we are today. At that level, if we needed to raise 100 mill (debt alone or equity an equity element) we would be in a much better position to do so without wiping out shareholders. Especially as by then, with gold having maintained a higher price, the market would be considerably more bullish and favourable towards financing a gold producer, whereas that is still not the case now.
Consequently, view this form of agreement as in the mid-long term interest (i.e. 5yrs) of current shareholders.
The bothering part for most of us is not the fact that this is an earn-in agreement. I somewhat support that. The bothering part is (a) mgt will gain a huge private stake in this, beyond what they already hold in HUM, and (b) 49% is a huge stake for a role that doesn’t even assume full funding.
Clearly mgt will have invested a max of 1 mill into ARX. Clear? Yes, as that’s >39% of the 2 mill that ARX can offer immediately without result of further funding needed for the other 8… Equally, the timeframe does motivate them to get their finger out and work on this.. So at least there’s a skilled & committed team behind it all.
Not the best, but far from the worst in my mind
Jammer - minor pedantic point but intangible asset value attributed to Dugbe is $65m, with the remainder for Mali. Section 13 of the Annual Accounts (page 76, or PDF pg.78) provides an update.
Thanks visitor. Should have checked.