The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
Are they purchases, sales or bonds ? I cannee make head nor tail of it all. Also how's the vote shaping up as I bow to those with superior knowledge in such things
Lawrence e13 see other posts. They are NOT purchases or sales, they are just updating there current shareholding in light of increased shares in issue
Thanks Rusty. Is that going to happen for every major share holder ?
Lawrence 13 Any major shareholder who is above a certain percentage, normally 3% but might be different for insitutions
Thanks Rusty appropriately as ever a gold mine of information
So it looks from the last Notification of Major Holding that we're up to 3.9bn shares in issue. By my calculations our original capital was going to be diluted from 3.2bn to 4.1bn when ALL the bonds had converted, so it seems as though about 80% have elected to convert ahead of this vote. The reduction in sp is almost certainly just a reflection of the enlarged share capital. Would be nice to see all bonds convert and then that element clouding the share price would be gone.
RB, based on my question to Rusty where do you think the share price will be on Monday ? I think if the old board get in it will be a straight move up to 40p plus and I think if the mafia get in, then the share price will move to 28p and then a big bounce upwards...
Retired Banker, I don't agree with you. Quite simply the company has more shares in issue, BUT, and it is a BIG BUT, It has LESS DEBT, one counteracts the other.
I believe the drop is more to do with the uncertainty of the vote on Monday.
Rusty - I merely try to add a different perspective for others to consider - whether people agree or disagree, think the comments are useful or a gripe is entirely up to each person.
For my part $125mm bonds plus $40m interest is the saving from the full conversion now ... but that is adding 925mm x 35p = 320m GBP to the market cap .... what has created 200m of extra value ?
RetiredBanker, Your calculations make sense. Nevertheless, more value than the $40M savings in interest was created. With lower debt the risks of financial distress are lower. And in heavily indebted companies like POG such risks are priced in a non-linear way. This is not to say that I disagree with your analysis. In addition, some of the increase in market cap might be linked to other factors, such as the increase of the iron ore prices (suddenly, POG's underwriting of IRC's loan should weigh less on the SP. 1.4Mton every half year sold for an additional $20US would increase the "profit" by $28M. So, one should see IRC's debt coming down fast. If it does not, then one might wonder if there are sales of iron ore being made that involve someone getting a cut... One would think not. IRC should be thriving now.
rusty, there are collar hedges in place for 3.5Koz per month until the end of 2021, w/ a ceiling price of $1822/oz. It is precisely because Hambro was not a sensible person that POG into trouble. When a company is indebted and the commodity it sells has a high price that you need to protect the downside (to lower the risk of financial distress; that helps push the SP up). Thus, now would be the time to get new collar hedges in place for 20Moz, per month until the end of 2021 with a floor price around $2000/oz. That would bring certainty to future revenues and would make it easier to issue new debt at a much lower interest rate than the one the $500M bonds pay. All IMHO
Assuming everything is transparent at POG, b/w yesterday and today POG's operational profit should have gone up by a couple of million USD...
GLA
Retired Banker, firstly, there is not $125m converted. secondly, where does the conversion price come into it, and what happens with the options that were taken out when the bonds were issued. I do NOT know the answer, but, it has to count for something.
One thing I will guarantee, it is better them converting now, saving the interest over the next 4 years, than converting in 4 years time with the share price at £1, after they have had their interest.
As I have said, I don't know the answer, but, I don't think it is as straight forward as you post, otherwise, we wouldn't have a book, or rules regulations and small print.
L3Trader, I have never been one to complain about hedging. It has its place, it works as a guarantee, and helped us build the pox hub. Some people would say, just take the risk, all well and good when the gold price is sky high. But, what if it drops.
I wouldn't hedge all, but if we were going to get a very good hedging price, maybe not a bad thing.
As long as the cost for these does not outweigh the benefits.
"RetiredBanker, Your calculations make sense. Nevertheless, more value than the $40M savings in interest was created."
Not to me they don't L3Trader!
$79m worth of bonds have been converted.
This will save paying 8.25% PA for 4 years on this sum.
By my maths that is $26,070,000, some way off $40m.
Sorry, just spotted that RetiredBanker was saying that we would save $40m if all of the $125m CB's were converted, not the $79m that already have been.
With regard to whether or not POG is at fair value, given the issue of additional shares -
1 I believe the rejection of the old board at the AGM has constrained the share price since June 30th. It had rising momentum up to that point.
2 Despite the uncertainty the share price rose sharply after the H1 trading update on 23rd July. It has fallen somewhat in the last week or so. I believe this has been caused by a combination of the new share issues and uncertainty as to what will happen on Monday.
3 The shares issued so far to cover bond redemptions represent a dilution of around 17%. The closing spot price for gold on June 30th was $1785. The closing price on Friday was 2035 - an increase of around 14%. When you take the increase in the GP over the period together with the reduction of net debt and associated interest, I think this cancels out the dilution effect of new shares issued - so far.
So my conclusion is that - if Pavel wins the boardroom battle convincingly enough for the pre June 30th momentum to be gained - once people get their slide rules out they will see value here. I intend to buy more on Monday if Pav wins well.
Workingstiff,
I can't see Pavel winning well. He will be lucky to scrape through imo.
Let's hope that some of the 586.6m new share conversions were made by Pavel supporters, otherwise I fear he's toast!
Kenj,
If he has got some of the bond converters and he gets a turnout of 90 - 95% he could win well. This vote has had a lot of publicity and it may be that the unaligned see him as the least worst bet. I suppose the options are:
1 He wins well and (after a potential sell off by the losers) the share price runs north until he does something stupid like issue more CB's.
2 He scrapes home and the uncertainty continues.
3 He loses. Then Strukov either a) takes the company private or b) reverses his company into POG. Option b would probably result in a massive share dilution as POG issues shares to "buy" UGC.
As I say, if it's option 1 I'll throw my HGM proceeds at it. If it's option 2 I'll hang on to my current holding for a while to see if Pav can reach some sort of accommodation with UGC. If it's option 3 I'll cut and run. In an environment where the gold price is rising there are other fish to fry.
I disagree it will be close. UGC, Everest, Slevin have about 35%. Fortiana have sold out. 35% isn't enough, and I can't see where or how they can persuade others to vote for them. 30% didn't vote last time. The vast majority of those are probably happy with the status quo given the 300% rise in the share price over the last 12 months. Haven't seen more than 1 pi post against Pavel either. That's another 10% against UGC.
They just don't have the numbers so much more likely Pavel will be back. Though there's a good chance resolution 19 will pass imo.
RetiredBanker,
You posted for months that the convertibles would stop the share price from going past 11p (since then it's reached 42p). Now you're saying that having converted the share price is likely to decline as the rise in value can't be justified.
I think you're wrong again. I both cases the market is fully aware of the conversion issue and has and will discount it.
Even with the conversion POG is too cheap with gold at 2000.
There may be some churn and some selling leading to a bit of volatility. Also, the rise from 24p to 42p was pretty sharp and some pullback was likely.
WORKINGSTIFF, PERSONALLY, I DONT SEE THE COMPANY ever, GOING DOWN THE CONVERTABLE ROUTE AGAIN, MY TAKE ON IT, FOR WHAT ITS WORTH WAS, WE WERE DESPERATE FOR MONEY TO COMPLETE THE POX HUB, GOLD PRICE WASNT PARTICULARLY HIGH AND WE HAD CASH RESTRAINTS FROM THE BANKS..... DIFFERENT ANIMAL NOW.
That sums up ("I believe this has been caused by a combination of the new share issues and uncertainty as to what will happen on Monday."), some of my concerns, workingstiff (also resolution 19),.....resulting, in my reducing our POG Gross Average s/p level, for our current POG shareholdings, to a Gross Average s/p@1.32422p,......positioning, for either outcome Monday.
BW
Rusty
I don't think he needed to issue convertible bonds last year, and certainly not at such outrageously generous terms. The gold price was on the up, the POX hub had been built, the corner had been turned.
No, I think last year's bond issue was a gift to the major shareholders at the expense of the minor shareholders. Pav showed us his colours then. He is what he is - the least worst option at the moment. If he survives this time, at some point he will want to repay the majors who saved his bacon.
The perfect outcome would be that Pav wins well enough for UGC and co to sell up, and an ethical investor - like the Norwegian Sovereign Fund - steps in and replaces them. Over time it would then become a better, more responsibly managed company. Ah, the dreams we dream :-)
Workingstiff, sorry, I disagree, I will tell you why I disagree then you can give me your opinion. Because at the end of the day, you have your opinion, I have mine. When the bonds were coming to maturity, the convertible price was about 8.5 there was $100m. They took the opportunity to add another $25m to it, that was the bad part, apart from the fact we were still not in a position to be generating lots of money, and the pox hub was not quite finished, and gold price was not at the levels it is at now.
The new bonds had a convertible price at about 12.75 which was at about 50% above the level of the first bond issue. If the first bond issued had matured,, we wouldn't have had the cash to repay, by refinancing at a higher price, I don't think the shares to be as converted are as high as would have been needed if they had matured at the due date,
I haven't done the calculation ( but, I would suggest they are getting less shares now, at the new price, than they would have if they had matured at the maturity date ).
Now, if you would like to tell me why my reasoning is flawed, I am very happy to listen. But for some to say it was a terrible decision, I would suggest they don't fully understand how convertible options work. The Big negative to me, is the fact that these were issued in $200,000 units and personal investors don't get the chance to participate, because I am sure there would have ben plenty of investors who would have been only too happy to stump up more cash.
As I say and this is open to anybody, please post if you think my rationale is wrong. I have not seen anyone comment on the forward pricing monies in the accounts or my rationale on the convertibles, just a lot of posting without knowing the full facts.
There have been many posters on here over the years, who have thought this was just a license to print money, without knowing anything about the company and the way it does business.
They profess to know it all, well, unless you are a fly on Pavels wall, You DONT.
Working stiff, on the second part of your post, I do not think it would be good for UGC to sell up, unless of course there was someone willing and able to buy the whole lot. With the amount of shares they have especially after the conversion option, if they were to sell there would be a massive chunk of shares available and I could see the shares going into Free-fall.
However, I do not think that will happen, because, I can not see why anyone in there right mind would exercise an option on convertible bonds which were paying a coupon of in excess of 8% if they were going to sell there shares, just does not make sense.
A better option, in my opinion is that Pavel and them get round a table, and find a common ground to move forward on a positive note.
Personally, I don't think it is a bad thing to have a large shareholder, who has lots of a product that they can not process when we have the very facility to make there product into real gold.
We should not be looking at the short term, we should be looking at the longer term, in excess of 10 years, and we could be a good compliment to each other helping both companies to make additional profits. As ever AIMHO, and happy for someone to come and try to shoot me down.
Rusty
On the first point we'll agree to differ. I think that last year POG would have raised a loan to buy back the 2015 CB's if they had been acting in the interests of all shareholders, but I take your point that the dilutive effect would have been greater if the 2015 shares had been allowed to mature. Maybe Pav's intention was to roll these CB's over ad infinitum, at an ever increasing conversion price, but I doubt it.
On the second point I think UGC have converted their bonds to increase their voting power at Monday's GM. If they win they get control. If they lose decisively - such that they don't think there is a realistic chance they will ever get control - then they may decide to take a stonking profit and take their predatory instincts elsewhere. That doesn't necessarily mean they will flood the market with shares. They may seek to identify a buyer. Hence my fantasy about the Norwegian sovereign fund.