Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Yep. iPad typing ****-up. And that was nearly clock-up….
I’ve rationalised my thoughts on valuations based on market prices of in the ground resource. Somewhere around the 65p mark in SP terms. But I now think the game has changed.
We have robust interest in the assets.
The price of gold is on the way up.
The jungle drums suggest that we should be thinking bigger, more in terms of the $400m NPV rather than $100 - $200m When MC suggested that we didn’t have the interest we now have.
There will indeed be value in the CNR shell once the assets are sold.
To cut a long story short, while I don’t think the SP will reach the value of the asset sale I do think that £1 asset value in equivalent SP terms will be a million miles wide of the mark. With the latter in mind I’m also dubious about whether all the options and warrants will get exercised on the way up. This will be one of the factors holding the SP down and encouraging profit taking from traders.
In summary I’ve edged towards a far more optimistic view of the eventual outcome.
I haven't posted because I've had nothing to say, but today's update puts a new perspective on the situation.
MC qualified his comments by suggesting that the offers were not binding. True, but the fact is that we are now in a competitive tender situation. It looks like we have moved into a Best And Final Offer stage, and today's news basically tells everyone that they need to sharpen their pencils for their BAFO submission. The interest shown might also attract a late bidder. Once news gets out anything can happen. Firms not previously interested might suddenly get interested. Everyone has a price but nobody likes losing without giving it their best shot.
Enough of the platitudes. I think what this means is that my assumptions of $150m could well be far too pessimistic. A competition for the prize might even double that.
As for current market value, as we have seen today with many people wanting to take an early profit suggests to me that the market will not allow the SP to get anywhere near what the final asset sale value will be, at least not until the final deal is announced. We'll wake up one morning and find that the MMs have adjusted the price to the point where they feel they can meet market needs - I doubt it will fully reflect asset sale value. At which point those who want a capital gain may well bale out, and the delta between the asset vale and SP will increase. I could see hours, perhaps a day or two, of rather chaotic trading and the SP bouncing about a bit. It will settle but I suspect it will settle lower than the opening price on the day of the sale announcement. Having said that I wouldn't bet anything on any particular outcome. Sale day could well be mad in any direction.
Trying to rationalise a SP in this situation is impossible. The fact that the market still thinks CNR is worth less than 20p suggests that there is a lot of doubt still. Meanwhile, it's still not even reached the 22p, the lowest option price for those still valid. It's not looking like further dilution is going to be the issue that some thought it might be.
I'm sitting tight. I honestly don't see the point in selling at the moment and I'm scratching my head as to why people seem content with a penny or two when outcome will be significantly more.
Meanwhile gold is at $1912 when I last looked.
I’ll post my thoughts when I get home.
I just had a look at their balance sheet. Net assets were approaching $3bn at the end of 2021 so they look like they are big enough to stand behind a $150m or so bid. Having said that it would not surprise me to hear that half a dozen potential suitors have kicked the tyres in recent months. Zhaojin are likely just one of many.
It's been a month since I expected an update with nothing forthcoming. A deal by the end of this month looks like a stretch, unless we have something unexpected in the works. I know MC won't talk to anyone at the moment, at least not on this matter, so we are all guessing. Even the MMs have run out of ideas. A penny up or down doesn't seem to move the trading dial, and they probably don't want to drop it much further until something tangible is in the air.
There doesn't seem much point in more speculation. Everything worth saying seems to have been said, including a lot that wasn't worth saying.....and still isn't.
One thing I will say though is that I don't see much happening in the way of exercising options and warrants. The insiders probably can't and the outsiders are in the same boat as the rest of us - will I get a return on my 22p, 35p, 40p, 48p, 50p etc? It will be even more frustrating for them.
I had pencilled in today as a possible RNS update day, so I have to profess disappointment at the lack of one. I’m not really sure what to infer from the lack of news. It could be that they have a far more generous timeline than I assumed, or maybe the interest is not there at the prices looked for. No news will continue to be interpreted as bad news by the market as Condor bumps across the bottom.
Fed has scaled back to only a 25 basis points rise. It's seen as dovish. A return to $2000 could be on the cards sooner than we think, although Condor seems immune to any excitement.
It's somewhat ironic to think that not getting a bid (and announcing the fact) could well put the SP back up to 30p+ again. Is (cosmetically) bad news actually good news? Much as I would like to exit Condor, I would much rather just know what's going on. Are we still selling, or are we back on the road to production again? Maybe the old 'build it and they will come' is a better way of selling Condor than a pre-production asset sale.
I had Friday targeted as a possible update day. It does feel like we should be appraised on the situation, even if it’s to say no serious bids yet. If nothing is forthcoming I guess my ‘by end March’ aspiration is dead in the water.
I would like to see a timeline that sees a deal done in this tax year. My belief is that there will be profit in it, not as much as getting a mine up a running, but there will be some. And I would like to see any CT paid at 19% and not 25%. Perhaps there will even be time to pay a dividend this tax year if the process moves fast enough (not every Condor share I have is in an ISA). My sense is that if it's not done by March 31st this thing could stretch out into the summer without a timeline. Like everyone else, now the die is cast on the 'not building a mine' scenario I would like my money out and in to something else.
$100 to $200m might be the ball, but I think there will be a lot of questions if the deals doesn't reach $150m.
Meanwhile, although the current SP is pretty irrelevant at the moment, people are still selling. Then again perhaps a couple of pence is worth having if you can't wait.
Any party wanting to buy Condor in the open market would find acquiring even a single digit % likely to push the SP up way beyond 50p. It's just too illiquid. The cat would soon be out of the bag.
All being well this time next week we'll have a progress update. Assuming the bid process had been well defined before last year's beauty parade announcement, a couple of months to get the initial round done and dusted seems reasonable. If something is not out by the 3rd I reckon a few question to the company are in order.
Oh no. Not the fruit and veg again…..
One of the reasons I think the per share value will be higher is because a part paper sale would facilitate a higher price. I know it will be optics vs. hard cash but I've seen it happen in other situations. The acquirer buys with its own paper which at the time is carry a good market price. It potentially makes a deal look better than it actually is.
I don't know what the intra - company debt will be yet so the £45m is a guess. One way or another it will need to be settled (Condor Gold paid off). I reckon the Nic companies will be sold rather than the individual assets within them. After all they will probably be carrying some (useful) cumulative losses for offset against profits (I don't know Nic's CT system but I assume there will be offset rules in place). Thus, if the companies are sold in their entirety I don't think Condor would would to be owed £45m ongoing. Debt settlement would probably be part of the exit deal.
I'm fully aware that I could be way out on this. I'm just thinking through some of the nuances of a possible deal and how the money might flow back to Condor. Also, don't be surprised if there is some sort of deal completion bonus issued to insiders who couldn't exercise options/warrants. I've seen that before as well.
I don't see a lot of point tub thumping about what might have been, or moaning about the SP. We are where we are. Condor has never received anywhere near its asset value so why should now be any different? While production still remains a (remote) possibility the more likely outcome is some sort of exit. That's what I'm interested in reading about, and what I think about.
Yes, I'm still in the 60 -65p, as expressed in SP terms, but I'm just as interested in how we exit as much as how much we exit for.
At the moment I'm thinking that the c.£45m intra - company debt will be settled in cash but that the rest of the consideration will end up being in the form of an equity swap with a current producer. Some of the £45m would be retained to administrate for a period (say £2 - £3m) with the rest being distributed via a special dividend. The residual value of Condor would then be roughly valued on the basis of its new investment in a producing miner, probably a dividend payer. The question then becomes one of what to do with it. I suspect a lockdown for a time; Condor perhaps being contracted not to sell for a time, and then maybe by tranches.
That's just one scenario. What about other posters throwing other ones on the table?
I tend to keep an eye on the USD, particularly the DXY.
https://www.marketwatch.com/investing/index/DXY
From around November 22nd it has slipped from around 112 to 101 as I type. meanwhile gold has risen. Expectations of a more 'dovish' FED on interest rates have encouraged USD decline at the same time as giving a lift to gold. Gold doesn't always move inverse to the USD but there are periods when it does. Technicians reckon the USD is oversold at the moment so a bounce up in the DXY might be on the cards; likewise a drop in gold. If it (USD) is bought I doubt it will last, especially while another debt ceiling pantomime is also on the cards. I'm also of the view that the whole world is not long off waking up to the fact that US debt is heading for $32 trillion and growing at a trillion a year. The US will never default but the value of its currency will have to drop.
https://www.usdebtclock.org/
Timing wise gold at $1900 can't be bad given the negotiation situation.
I'm hoping we will see something next week. Agreed that enough time has passed for some sort of interim progress report, even if it's to say we are behind the original schedule; whatever that is.
As for the SP, I'm not expecting much movement until some sort of news is forthcoming. No news is often interpreted as bad news by the market and it's not as if the company is willing, or able, to talk to investors, prospective or otherwise. To be honest I was surprised at how forthcoming the last interview was. That $100 to $200m estimate did get my attention.
I've mentioned before that there are so many variables at play at the moment that it's impossible to be certain about how things will play out. Take the options and warrants. It's not difficult to see a situation where none will be exercised. At the moment the insiders are not able to because of proximity to price sensitive information but after the sale news is in public domain it could be game on, subject to the rules associated with each tranche of options or warrants.
What could happen on day one of the news? Price volatility for sure, and probably an immediate spike, but then what? Will (eligible) option\warrant holders have time to exercise before the price dips? I'm pretty sure that there will be a lot of selling on day one as investors keen on taking gains vs. dividends will bail out. This would likely suppress the SP, capping the spike and probably reducing the SP pretty quickly. Suppose holders of 5m or 10m options are eligible to exercise? Will they also sell for an instant capital gain, or wait for a special dividend? What happens if they do sell and 5m - 10m shares hit the market? Will new shares flood the market and suppress the SP? Will we see a lot of new investors jump in for a 2023 dividend payout? It's impossible to guess what might happen but an instant spike to 35p or 40p could be followed with a sharp drop.
Then there is the possibility of a paper and cash exchange. The deal could end up being circa £45m is cash to pay off the loans and the rest as equity in the acquiring concern. Condor then effectively becomes and investment company; the interests in its own subsidiaries being exchanged for an interest in the acquiring entity. If that entity is listed a valuation of that interest would be easier to reflect in Condor's valuation. Thee would then be a decision of what to do with the paper. Sell it (probably subject to deal constraints) or sit on it for a time. Only the loan repayment would then be available for cash distribution. Perhaps this would be an early return of 20 - 25p\share.
As I've repeatedly mentioned it's diabolical trying to work out how things might unfold.
I'm not buying more. I keeping two portfolios, one speculative and the other conservative. Condor is already disproportionate to the others on the speculative end and I've learned the lesson of Arian Silver. No matter how good it looks or how close you are to getting a return you need to manage risk. I'll switch a few around in March\April but I don't really want to take on much more. I'll be realising some gains on other shares in March and may pick up a few then if the price remains low but it will low numbers at best. I wouldn't recommend anyone get too deep. My strong buy is really for new investors coming on board.
I ran out of characters. The last point I was going to make was that the assumptions I've made could go either way but I doubt that all will be negative to my base case, nor will they be all positive.
There doesn't seem to be much we can do at the moment other than wait and see what happens. I'm hoping the next update will be no later than the end of week 1 February.
Assets discussion.
The last financials have a balance sheet date of December 31st 2021 so the numbers will most certainly have changed by now, albeit my guess is that the basic structure remains the same. Condor Gold is a group holding company so you could define its assets as its subsidiary interests, as much as 'real' assets, the land and gold in the ground. A consolidated balance sheet is presented which aggregates the assets although I'm inferring from the fact that within note 2, 'Assets 2021', that the actual land and resources are held within the holding company's subsidiaries - 'The group had intercompany debt owed to the UK at 31 December 2021 split segmentally as follows: Due from Nicaragua £39,511,480'. My guess is that this is now more in the region of £45m given subsequent payments on the mill and land.
Note 11 provides details on the subsidiary investments, all 3 incorporated in Nicaragua
Condor S.A.
La India Gold S.A.
La India Inversiones S.A.
Condor (holding co) set these up for tax/political/regulatory reasons at some point in the past when I wasn't paying much attention. The holding company makes a loss and funnels cash raised into these (pre-operating) companies to acquire assets, hence the £39m/£45m amount due from them.
My guess is that it's these subsidiaries that will be sold rather than a contract for selling the actual land, licences and mill. It's cleaner and Condor holdings won't have much use for them in the future. To any employees and change of owner is just that; business will continue as usual.
Assuming the assets are sold my guess is that the first element of cash repatriation will be settlement of the cumulative intra-company debts i.e. the £39m/£45m. The buyer injects the settlement cash into the Nic companies who in turn repay Condor (holding co). The rest of the consideration is then subject to a capital gain on the difference between the subsidiaries balance sheet investment cost and the rest of sale proceeds. So, if £150m is raised, £45m is paid to settle the debt and £105m is then the sale proceeds for disposal of the companies themselves. The £105m is then the UK capital gain and (ultimately) subject to corporation tax. Which is why a March sale would be better than a June sale (19% vs 25%). Condor had £25m of cumulative losses in the consolidated balance sheet but I don't know how much of this sits in the holding company vs. the subsidiaries so you can't be sure how much the taxable gain would be offset by cumulative losses. Given the numbers I'm fairly sure something will be payable and probably noticeable.
There are so many variables flying around that it's impossible to come up with a definitive scenario given the limited data in the public domain and the, as yet unknown, sale price. I've made a whole bunch of assumptions and could be out on several. Nonetheless, however I play around with the upsides and downsides a 60p valuation per share still looks attainable.