It is useful to observe. There many posters displaying textbook examples of sunk-cost bias, confirmation bias, and plain wishful thinking. This alongside dreadfully muddled reasoning and poor numeracy.
It's a shame because the people who should heed caution are those least able to. From somewhere between greed and desperation this paralysis issues. But those slightly removed -- observing vivid blunders repeated with stubborn vehemence -- become fortified against these pitfalls.
"Paul will probably do it. 40p per share at the moment. New shares at 39.5p per share (allowing a discount) Post recap 39.6p per share, with rapid recovery to a pound, probably by the weekend."
...with Elvis and NK as joint CEOs. I'm waiting for it.
FT articles carry weight. If it even opens for trading on Monday morning, that's it for the equity valuation -- it's going to get demolished again.
It's endgame here for the big players. Small investors about to be all but wiped out; it looked that way for some time. Very uncomfortable weekend to hold a substantial amount.
Really Paul, are you pretending to be thick or being deliberately misleading? You're saying a 6% bond trading at a discount of over 60% to par has a yield of 2-3%?!
----> For anyone remotely numerate or financially literate, take the above as irrefutable evidence to ignore the entirety of every post of this commentator. If this isn't blindingly obvious to you, or you don't understand why that is, then don't be investing!
Not sure if I've understood bigsmoke, but the directors say the reduction in CAPEX will eventually have to reverse (around the time the bond matures). My impression was that they are being forced into under-spending on the development of the mines because of the paramount need to conserve cash, i.e. the assets are being starved.
Some of the figures thrown about below are optimistic. If they achieve the low end ($150m) of FCF through to 2022, then new notes of around $500m may be possible. That leaves debt still too high. But their problem is, they will then need to increase CAPEX again which is going to mean issuing new debt.
They're in too deep with the debt they've already got; their revenues/profits, and FCF, don't give them the firepower to get out of it without help. Help could be d4e, rights issue, or a much improved diamond market. I think they'll have to ask for more cash to plug the gap.
Probably the best answer is that there is no apprehensible reason for the wild gyrations today. Fluctuation in equity pricing exhibits strong similarities to random and/or chaotic behaviour. In other words, it's not predictable -- it can't be forecasted.
True they were, but I'm calculating based on the new relaxed covenants. They were guarded in their response to questions about it at the recent update. If EBITDA is around $150m, then they will be very close to breaching.
I'll try to explain. Because when you make a decision, it's done at a discrete point in time. You can't make a decision regarding a future using retrospection. Then, it follows that analysis of that decision retrospectively, using hindsight, is illogical -- the arrow of time travels one way only. Your way of reasoning is very common and hard to resist, but it's muddled because it assumes information that you're now availed of was present at the time of the original decision.
Your maths is spot on. However, when the SP was 4.3, the future valuation was unknown. Based on the business (the CEO/CFO even said this is going towards 0) structure and performance, the only rational action was to opt out. A new party building a stake after this point does not invalidate the original reasoning.
I know the business is poor, in decline and therefore not worth owning any part of. Extreme volatility is normal with companies in distress; they are random fluctuations that'll eventually shake out. If you've made something, it's only because, so far, you've been lucky.
The business hasn't changed. Only sentiment over the equity valuation has got out of control, the spark being NK stakebuilding. When it was 4.3p the correct decision was not to buy; that's still the correct decision now.
If it was 9 or 8 and then the diamond market deteriorated, or there was an operational problem at Petra, I think it would fall further. I was surprised to see the SP here after the recent update, but having researched it in more detail, I'm less surprised.
They have multiple things weighing on the viability medium and longer term as a company. To some extent progress is out of their hands because of the debt, but they cannot afford a single mistake either, or they could be in jeopardy.
Until the medium term outlook improves, and/or some evidence emerges that the FCF of $150-200m is plausible, I think the valuation will trade closely to the currently level. Traders (seems a few here) will keep getting opportunities to make 10-20% over the shorter term though.
Because their posts repeatedly demonstrate basic errors in arithmetic; understanding of corporate finance & ownership; hyperbole about the share price; fantastical speculation about the motivations of the various parties involved. I could go on.
Look at the post directly below: they gloss over a write down of £1.1bn as if it's meaningless or even good. They mention the £1.5bn debt as if it's small change; and they see it as somehow cheaper because this debt is changing hands at a serious discount to par! They neglect to note how much profit TCG manage to make on £9bn turnover, and so on.