The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
Just to remind folk that the major shareholders are also now the owners of all the debt, the banks are no longer involved. They are earning between 7% and 15% on that debt, but I suspect they would be only too happy to see the debt paid off quickly (say 3 years), as it will will multiply the value of their share by far more than 15%, and they will start to get dividends.
Sales in H1 this year were 31% higher than H1 2019 - in spite of some maintenance issues and COVID-related difficulties!
The debt repayment terms may not be optimal but at least we now have some much-needed *certainty* - it is of course the uncertainty that has suppressed the sp for so long. I think we are going to fly past 2019's brief 1.9p peak, I doubt we'll see sub-2p ever again.
Goshawk250, thanks for your input - just to query one thing though, isn't it the case that major shareholders have to notify every time their holding changes by >1% - so we would know about it if, say, Candy had been selling off in the kind of volume needed to reach drop below 39%?
If the major shareholders currently own >65% of the shares that means about 1.3bn of the c.2bn in issue.
In order for the major shareholders to acquire a 75% stake via a debt-equity swap, the company would need to issue them with about 800m new shares (the major shareholders would then hold 2.1bn out of a total 2.8bn in issue).
If that equity swap reduced the debt by say £25m, the implied shared price would be £25/800 or 3.125p - that is a significant premium on the current share price, although it is about the level many on this forum have been arguing is realistic for a company now reliably producing gold.
One question would then be, why would the major shareholders effectively pay £25m for 800m shares, when an alternative to achieving 75% might be just to buy 200m of the existing shares on the market - current price about 1.2p?
The answer is presumably that if anyone tried to buy that number of shares, it would immediately push the price up to 3p or more anyway. Because most of us are not selling at 1.2p.
Are we?
(DYOR, I'm new to this game and highly likely not to know what I'm talking about! But I will be delighted to have any logical or practical errors identified in my analysis.)
I don't think these prices will last long. The biggest debt holders will be keen to turn their debt (which the company can't service) into shares (which once the debt is gone will easily double in value). Especially as the biggest debt holders already own most of the shares.
Agree a few sells is no surprise, many who bought in the last year are seeing 100% profit. But if you look at the SP before last year, a further price doubling is imminent. Those sellers are foregoing a 400% profit, maybe more.
Roy: 4m
I deduce that the senior lenders are happy to wait. Gold is being produced in increasing volume but it doesn't make sense for them to settle new repayment terms without knowing more about how successful the fine-tuning measures being made to the extraction process might be.
"Further to the Company's announcement dated 3 May 2019, Metals Exploration confirms that its lenders, HSBC and BNP Paribas (the "Senior Lenders") and its major shareholders, MTL Luxembourg SARL and Runruno Holdings Ltd, as holders of its mezzanine debt (the "Mezzanine Debt Facilities") have renewed a Standstill Agreement (the "Standstill Agreement") for a further month until 28 June 2019.
Under the Standstill Agreement the Company is relieved of making both principal and interest payments due in relation to its Runruno Facility Agreement (the "Senior Facility") and the Mezzanine Debt Facilities.
The purpose of the Standstill Agreement is to allow the Company and all its lenders time to evaluate, and consider possible solutions to, Metals Exploration's current financial position.
A further announcement will be made in due course."
Adam I think you may have a while to wait for dividends but I also think a 5p sp is achievable in months rather than years. I think dividends will have to wait until most or all of the debt is paid off - I think the debt was originally scheduled for and of 2020 but expecting it to be a couple more years after that once restructured?
I'm guessing the banks will want to see at least the interest payments resuming though, rather than continuing the complete standstill?
Odd there's no announcement yet - the debt standstill was agreed until today, so as from tomorrow there's either an extension to the standstill or else a new schedule needs to be agreed?
Meanwhile the market cap is about 3m less than the $20m revenue from gold sales in Q1!
There are a number of problems highlighted in the RNS update which we already knew about - the ore is more dilute than the original feasibility suggested and the processes to extract it therefore need adjustment. (Though not mentioned in the update, I believe these issues will be partially offset by the fact that the price of gold is higher than when the original feasibility study was done?). Anyway the update presents the issues honestly and shows the new directors/management have a good grasp of the issues and clear plans to resolve them. Meanwhile the debt needs restructuring - the mine is proving capable of producing actual gold just not (or not yet) at the rate/cost of the original feasibility study, so the debt repayment schedule need to reflect that.
In the long term this still looks like an outstanding sub-penny investment opportunity to me...probably in the short term too, as news on the debt restructuring ill presumably appear in the next few days?
Rising nicely today - I think last time we saw some resistance around 1.8, so I doubt we'll break 2p until the quarterly output figures RNS is released - next week? Meanwhile, Happy Easter!
I'm guessing one good reason the board will want to stay listed is in order to finance future expansion/future phases of the mine. The share price is currently too low to raise much finance without significant dilution, but once the share price recovers (hopefully starting once Q1 production output is confirmed in 3 weeks or so), that shouldn't be a barrier.
Thanks Adam and Lee - still struggling to understand this but trying hard!
Looking at the 2018 Q1-3 figures the Tonnes Milled was in each quarter slightly understated (e.g. Q1 413K tonnes milled rather than 435K), and the Au Feed Grade overstated (e.g. in Q1 they reported 1.38g in each tonne but now restated as 1.59g). The net effect being they thought they were recovering 54.7% of gold from the ore in that quarter but actually only recovered 50.3%.
This seems to indicate the ore is of a better grade than they thought, and their process of extracting gold less efficient than they thought.
Both of which are Good News, provided they can improve efficiency of extraction.
But then I don't understand the statement "this dilution of approximately 20%, which is not abnormal to operations, is ongoing and is leading to a reduced mill feed head grade" - as above the Au Feed Grade is actually higher than previously stated?
And also still puzzled by "This dilution is expected to continue going forward" which suggests the efficiency of extraction may not be improvable?
Just for the record I'm a LTH and currently fully invested, just trying to make sense of this RNS!
(Speaking of RNS am I alone in not being able to see the latest one - https://uk.advfn.com/stock-market/london/metals-exploration-MTL/share-news/Metals-Exploration-PLC-Interim-CFO-Appointed/79364535 - on this site?)
Hi, am struggling to understand the current situation, hopefully someone with more mining knowledge can enlighten me!
From the latest RNS
"The corrected metallurgical recovery for the first 3 quarters is 55.6% against a previously reported recovery of 66.6%. This represents a reduction in gold recovery of 11%...It is the view of management that this dilution of approximately 20%, which is not abnormal to operations, is ongoing and is leading to a reduced mill feed head grade and ounces produced. This dilution is expected to continue going forward. The management are currently engaging a 3rd party review of the life of mine plan and are targeting to have an updated plan by end of the second quarter of 2019 with an update to the reserve and resource statement by end of the fourth quarter of 2019. "
From last year's quarterly statements it looks like we can produce and sell $14+m gold but operating expenditure is about $15m (seems to have been $18m in the last quarter) plus interest an principal repayments on some large loans. If as above the "dilution is expected to continue going forward", how do we become profitable?
Thanks
The board seemed to agree to the banks conditions fairly quickly which presumably means they are confident they can be met?
We have to pay off $15m "from equity proceeds" but I take that to mean "not by taking out further debt" i.e. the $15m *could* come from some sort of placement/rights/open offer but why not from core earnings (gold sales)? Why would the banks object to it coming from core earnings?
I'd be surprised (very pleasantly!) if it gets past 3p before the first quarter production figures are released but as I said a couple of days ago this one can't possibly be worth less than 2p right now.
Has everyone fastened their seatbelts ready for takeoff tomorrow morning? :)
If there was a company out there investigating time travel, I think I'd be tempted to invest...although of course if they were successful they could go back and undo my investment so maybe not!
Back on topic does anyone have a reference for Ruffers exiting AIM - just occurred to me they might be offloading other shares at bin-end prices?
MTL was steadily well above 3p in 2017 and until the summer of 2018. With the recent developments - experienced new CEO in place, debts restructured/rationalised, price of gold increasing, and perhaps most importantly an increasing amount of gold being mined - it seems odd that this isn't over 2p by now?
I'm new to this game but predicting an exciting afternoon and a breath-taking Monday morning!