Member Info for dictumdedicto

It's interesting, more of a tax law challenge rather than an accounting calculation.

Is the CVR as part of the capital gain at the time of the grant? In other words it is very much part of the purchase price. In which case, as the shares are held in an ISA the proceeds from the CVRs would be treated as non taxable.

or

Assume that it's a new asset, valued at zero, when it appears in your taxable trading account. In other words any income you get from it is pure capital gain. Of course you could say that the value of the CVR cannot be known until the proceeds are received, in which case it is, as you suggest, a revisit to the ISA (tax free) CGT calculation.

Either way I struggle to see how HMRC can make a legitimate case to tax CVR proceeds if the the original shares, against which they are issued, are\were held within an ISA. I'll defer to a tax lawyer on this if we have one watching...

I didn't post this at the time, but some of you might find it helpful. I wanted to clarify my understanding of how the CVRs will be treated. This was the response:

'CVRs (Contingent Value Rights) entitle the holder to distributions based on the achievement of certain milestones. In this case, 'subject to the completion of the first gold pour following the commissioning of the relevant processing facilities from the LA India mining operations'.

CVRs are usually unlisted, and are therefore not able to be held in ISA accounts. Should you receive them in an ISA, they will need to be moved to a Fund & Share Account within 30 days of being credited. Should a milestone be achieved and a distribution be due to CVR holders, this will be paid to (your broker) and credited to shareholders' accounts upon receipt.'

I'm assuming the broker will move them to a taxable fund\trading account, which might include creating one if you just use an ISA. I've still got one although most of my investments are in an ISA.

The challenge for CGT purposes would be valuing the CVR as a contingent right to future income. Everyone could have a different opinion on the value of the CVR as of today, which is no doubt a lot of fun for taxpayers, accountants and HMRC. As I mentioned on an earlier post, it's messy. I'm just going to value it a zero, albeit in reality it really ought to have a value. Producing gold is after all the whole point of MTL buying CNR. You could come up with all sorts of probability based calculations and come up with something that looks scientific but is in fact a load of boll*cks.

End of a long journey, and the start of another...

True, but on the other hand we have the CVR promise...

There is no science behind my £250m expectation. I'm thinking more behavioural influences than an NPV approach, although you could start to rationalise it via starting with Condor's NPV alone, without reference to MTL's current value. At some point I'll have a go at the numbers but I've not got my head around the combination yet.

£250m will remain a gut feel until I can get to a MV via the numbers.

I'm certainly not predicting it, but I am aware that you can never rule out a surprise. Both companies want to be a lot bigger than they are. Egos would certainly play into into such a discussion, and the days when Calibre could sit out Condor in the hope that they could steal the asset are now gone. Calibre let Condor slip through its hands because it wanted the asset dirt cheap. Any new arrangement would have to recognise that MTL is not Condor; it doesn't need to hold out a begging bowl. A post MTL deal would have to acknowledge a far more realistic value for Condor's $1bn+ asset. A bid for Condor from Calibre is now ancient history, but you couldn't rule out another go, only with MTL in its sights and not Condor. They won't have a lot of time to think about it because in my view MTL is only just starting its revaluation process. MTL will be a lot more expensive later this year.

It's hard to rationalise a new market cap for the combined MTL/CNR but I don't think 10p is out of the question over the next few months, as a fundamental revaluation takes place.

Excluding treasury shares, MTL has an issued of circa 1.728m. CNR's acquisition involves 4.0526 x the issued of circa 204.442m, or about 829.220. The new base issued and allotted becoming around 2.56bn. A 10p a share value would equate to £256m vs. the closing combined market cap of £170.56m (£63.41m + £107.15m). An £85m increase on today's individual valuations; around a 50% uplift. I don't see that as something unattainable in the next few months given the wind behind our sails. Over 10p this year may be ambitious, but I do think another 50% uplift (on 10p) is a very reasonable ambition for 2026.

Let the new world discussion roll on.

What a Calibre MTL combination would look like? I'm not predicting/forecasting interest, but both companies are ambitious, and Calibre has been a pretty constant feature in Condor's life over recent years. Egos would have to be negotiated around etc. etc. but I'm guessing MTL is now on Calibre's radar. Not something for the immediate future, but nonetheless a possible talking point in 2025. All that discussion about a toll deal with them (a regular Condor board discussion in 2023 & 2024) could be a way of accelerating cash flow. You never know...

EoY 2025. I'll go for 75p. I reckon the bigger leap in 2026 if everything goes to plan.

ddd

Agreed. I think we all need to get behind MTL now, with a view to us all making some money.

The King is dead; long live the King.

Unfortunately, as the CVRs are likely to be unlisted (and not tradable) they will need to be held outside an ISA. In which case the spectre of HMRC’s interest appears. It’s messy.

I’m taking the view that the CVRs will not be a tradable security. In which case until they have a market value, they don’t. It’s the value of the right to future income rather than the actual earn out that forms the basis for the CVR CGT calculation. Thus, if and when payouts are actually made the base CGT cost for me will be zero.

There are 3 elements, cash (easy), shares (easy) and the CVR (difficult). The latter is valued based on the value of the right to the earn out rather than the actual potential payment. My instinct tells me to value it at zero at the date of the transaction and bite the bullet if we ever get anything.

Any other views?

On that basis I more than hope I'm wrong in my timeline. I'm afraid years of Condor has tempered my enthusiasm for quick returns.

This is a c&p of my post on CNR. In time I'll get down to numbers, but I think a lot of the early (post acquisition) price moves will be sentiment driven.

'Yes, I do believe that MTL could triple in value in the next few years. I valued Condor a couple of years ago at 60 - 65p based on average resource values at the time. PoG has shot up since then, plus there is now a serious chance of going into production. The fact that CNR rejected this a couple of years ago has been a major drag on the SP. Removing this factor and you already have fuel for a re-rate of MTL, potentially soon after the takeover. MTL's limited production lifespan has, in my opinion, also been holding its SP back. Again, this factor has now been removed. You can also add to this the prospect of MTL developing other resources. Throw a bit of luck into the mix with these and you have an overall formula for a hike up to 15p in the next 2 - 3 years.

A lot can still go wrong in that timeline, local politics, global shocks (war etc.), bad luck i.e. unforeseen development problems etc. Nonetheless, I prefer to stay optimistic; after all I've been with Condor for 15 years - almost as long as my 20+ years in FI oil exploration and development (now finally showing signs of happening).'

A reminder:

In addition, pursuant to the terms of the Possible Offer, each Condor Shareholder would be entitled to receive one Contingent Value Right (the "CVR") (the "CVR Consideration"), which would entitle them to their pro rata share of US$18.00 per ounce (to be paid in pounds sterling at the prevailing exchange rate at the time of payment) of additional contained gold JORC Mineral Resource discovered in excess of Condor's base case Mineral Resource Estimate at the Condor Group's La India, Rio Luna and Estrella projects (the "Gold Projects") (subject to a cap of 1.6Moz), over the five-year period following the earlier of (i) the first date upon which a suitable drilling rig to carry out certain agreed work commitments has been mobilised to the La India Project (as agreed with an independent CVR representative); and (ii) six months following the proposed scheme of arrangement's effective date (or equivalent) (the "CVR Commencement Date"). Payments due under the CVR would be settled by way of the issue of either new MTL Shares or loan notes issued by MTL with a maturity of six months and one day after their date of issue (the "Loan Notes"), or a combination thereof, at MTL's sole election, following the third and fifth anniversary of the CVR Commencement Date.

Accordingly, the maximum potential CVR Consideration payable pursuant to the Possible Offer, would amount to US$28.8 million (approximately £22.6 million at the prevailing exchange rate), representing 11.1p per Condor Share (the "Maximum CVR Consideration"). Accordingly, the Fixed Consideration and the Maximum CVR Consideration (at the prevailing exchange rate), in aggregate, would amount to approximately £90.1 million, representing approximately 44.1p per Condor Share.

The CVRs are complex instruments and a number of factors will determine the amount, if any, that would ultimately be paid to Condor shareholders by way of the Contingent Value Rights if the Possible Offer is made on the terms set out herein.

I did not see a requirement indicating that shareholders are compelled to retain the shares the CVR is associated with, especially as there is no timeline associated with payment (only conditions). It would be rather strange suggesting that the offer price is 44p, but at the same time it's 33p. I tend to see it as delayed and uncertain in amount consideration, currently worth zero but potentially worth 11p.

What would be of interest is whether the CVR, once in a trading account, is actually a tradeable security; or is it simply a promise to pay something at some point? In other words, could I actually sell it on the market? Again, probably worth zero at the moment, but in time it could be worth up to 11p per current Condor shares.

Another question I ask myself is the CGT treatment. How can you put a current value on something that might never be paid? And even if you could, what exactly would that value be today? My current thoughts are that zero is attributed to CVR; all that is currently relevant are the MTL shares and cash. In time, if anything is paid, the CGT baseline would be zero so anything received is a direct capital gain.

I'm working on basic principles on this as I've no direct experience of this sort of right. It would be interesting to see other opinions.

Rider

It is. I go back to the early 2000s Desire days. FI oil exploration makes CNR look like a fast turnaround...

I have also voted in favour.

And I do see a realistic prospect of MTL at 15p over the next 2 - 3 years, as per my post on the Condor board.

Having made a decision, the sooner this is dealt with the better...

Yes, I do believe that MTL could triple in value in the next few years. I valued Condor a couple of years ago at 60 - 65p based on average resource values at the time. PoG has shot up since then, plus there is now a serious chance of going into production. The fact that CNR rejected this a couple of years ago has been a major drag on the SP. Removing this factor and you already have fuel for a re-rate of MTL, potentially soon after the takeover. MTL's limited production lifespan has, in my opinion, also been holding its SP back. Again, this factor has now been removed. You can also add to this the prospect of MTL developing other resources. Throw a bit of luck into the mix with these and you have an overall formula for a hike up to 15p in the next 2 - 3 years.

A lot can still go wrong in that timeline, local politics, global shocks (war etc.), bad luck i.e. unforeseen development problems etc. Nonetheless, I prefer to stay optimistic; after all I've been with Condor for 15 years - almost as long as my 20+ years in FI oil exploration and development (now finally showing signs of happening).

Ditto. For all the reasons already discussed.

We don't really have a viable choice in the absence of another serious bidder.