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I think it will be pretty obvious from the final deal structure, if all plays out like it is looking likely.
There's 3 main pieces to put in the right places before the deal(s) can be done:
- Getting the licenses fully owned by the company
- Proving the assets with JORCs
- Getting the licenses in the specific subsidiaries to be disposed of
We've seen various updates, but I think they are holding back a lot to conclude it all at the same time, which is neater than releasing everything piecemeal.
If the company keeps back £500m in cash, what do you think it is going to do with it? I don't think they will keep that much back.
Post-sale the company is not going to be in the business of investing in mining capex. the assets will be gone and financed by the buyer(s). The hydrogen projects are going to be funded with external funding (there are ERG investment funds queuing up to throw capital at these type of projects for a % return).
EUA2.0 will probably want to keep some cash back for licences/project setup costs but not a significant amount.
My view is that this RNS is provided to give the market a steer on how to value EUA2.0 once the deal is announced, because there will be a stream of future income included in the deal.
The divi policy says AT LEAST 80%, and I still believe that the BOD will pay out close to 100% after fees/tax of the MT+Flanks upfront sale proceeds.
The 80% threshold IMO is there because part of the deal will be a future stream of royalties/fees coming into EUA2.0 as the JV and any hydrogen projects are developed. The 80% gives the market the information on what the company is going to do with this cash i.e. it is pretty much going to get passed straight back to shareholders.
This will allow analysts to confidently add this discounted future stream to the sp once the deal is announced. Without this confirmation today, the market may well wonder what the cash would be used for i.e. it might not be returned to shareholders straight away.
I had assumed that a lot of the financing will come from H2 Capital.
H4 bringing the hydrogen expertise and EUA's input to the JV being the local link to Russian authorities and gaining the options on the land, and tax breaks. H4/H2 wouldn't have been able to do the project without the local link.
Sounds like there are 2 projects with land secured, FS completed, just in the process of looking for a Japanese investor to sign up.
EUA is now in a great position to be a party to these deals as they now have the Government blessing to get land/licenses secured.
Anyone want to try to put a value on how much one of these projects could be worth?
"Mr. Kosaka's appointment is a part of the execution of our strategy as previously announced"
Execution = completion of a deal
Seems like the guy has joined the board "as part of" closing a deal with the Japanese.
If we look back to what we know: there are "several transactions" currently being worked on.
1) The "proposal" from the Buyer. Has to be MT+Flanks. This is up for sale, hence the "interim CEO".
2) "other interested parties" "International" must be the other transaction. This is likely to be Japanese. Not sure what they are selling here, most likely a take off agreement on the JV assets.
There must be something connecting the 2 transactions, which is why IMO there is a hold up on the 1st one. Best guess would be the "proposal" was from NN who said they would pay upfront for MT+Flanks, then want to have a stake in the JV including providing the ground works/processing.
NN could take MT+Flanks, without anything tied up with the Japanese, but maybe they want a take off deal to be in place before the first deal can go through?
Positives for me over the last couple of months:
- First in a "series of JORC reports". I think they are all ready, but the BOD can't release the JV area JORCs because we don't actually own any of it yet. Should follow very soon as the licence process was nearly complete a few months back.
- BOD putting the $1.2bn NPV in the RNS. They wouldn't have done that if they were going to flog the company's main assets for anything like the current sp market cap. I think this was a signal that we are talking big money here.
- List of professional firms named in the RNSs is growing. This is just adding more and more credibility to the process. All these firms are world-class in their fields and highly credible.
Next steps:
- Licence transfers + trigger 100% ownership + release of JORC figures
- Sale of MT+Flanks+agreement over some of the JV
- Disclosure of 'other interest' in other JV areas
My theory on the JV licence transfers over the last couple of months has been that it was the COMPANY stalling these from happening, rather than ROSGEO or the Government.
I believe this is because the Company want to announce the transfer and immediately trigger the purchase of the full 100% ownership. To trigger the 100% buyout, a JORC is required. If the transfer was done before the JORC, the Company would be in a limbo position of being part-owner.
Now that the WA JORCs are done (that is how I read today's RNS),I think that the BOD will get the paperwork back to Rosgeo to complete the JV licence transfer and trigger the 100% buy-out.
Could this be done before Christmas? Possibly, as the cash is sat there waiting for the buy-out and i'm sure the BOD want to get it done ASAP.
TMS:
Have you actually the Rosgeo JV RNS?
"The total of the Initial Consideration and the Earnout (if applicable) is capped at 75% of the value set under the relevant Russian law if the Additional Assets had initially been auctioned by the Russian state instead of being acquired by Rosgeo."
So for a start, EUA won't be paying Market Value for the assets as you said.
It is actually significantly less. Even if the "Auction Value = market value (which it won't), then the cost to EUA is capped at 75%.
My most optimistic theory is that there is actually a bidding war, so the BOD don't want to accept an offer until they see other offers first.
If there is a positive reason for the delay I think the BOD should do an update spelling out why it is delayed things.
Comment from Potanin at the NN marktets day:
" I believe that transformational investments will result in higher value for Nornickel and its shareholders combining industry-leading profitability and top-notch ESG standards”
Plenty of other info on there about expanding output, supply agreements and capital investment.
I have thought that today/Monday 7am is the most likely opportunity for an announcement, with it being NN Capital Markets Day on Monday.
JORC should be done, DD was completed a month ago, if the buyer is NN then this would be the time to announce it if anything is going to be heard pre-christmas.
I think it all rests on the license transfers.
Money was raised back in September to pay for 100% of the licenses, currently sat in the bank.
JORC is complete, just need the licenses to be transferred to the JV so the BOD can trigger the process to bring them under 100% ownership.
A frustrating wait for everyone.
My view on the final outcome hasn't changed:
- MT+Flanks+WK sold to Buyer (NN)
- Dividend paid to EUA shareholders
- EUA2.0 formed by JV with NN which would hold the Rosgeo licenses
- NN pay out upfront fee to EUA for this which would be part of the divi.
- EUA2.0 will then look for capital investment either from Russia/Japan to mine the JV assets starting with Nyud (new listing?).
- I think NN may want to keep EUA2.0 separate from their structure just so they have a clean vehicle for ESG perspective
- This will dilute the sp, but will create a future stream of royalties and an annual Management Fee for EUA2.0 (NN will do the groundwork and get a cut of the royalties.)
Hopefully the hold up to all this is the first license transfers. But it would be a complex structure so no wonder it is taking some time.