Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Well MC did suggest a range months ago although I took this with a pinch of salt. While I do think that the bidders may well be waiting to see who blinks first, I don't think they would risk trying to wait it out for too long. Sure, if nobody moves, in theory this could run into the autumn and even another fund raise, although in MC\JM's shoes I would want a plan b, to get up and running. In other words a project finance raise to kick-off the mine build. Not that I think it will get to that. There are too many interested parties for one not to have a serious crack. And once that happens I reckon it will be game on.
The SP going up and down is just the mms trying to do their job. A few hundred thousand hands changing hands to move the SP a penny or two is not in my view an influence on the outcome. A disappointment for day traders perhaps, but pretty meaningless as far as the ultimate outcome is concerned. Don't get me wrong, I don't like to see the SP go down but I'm not getting too excited about it.
As for timeline and RNSs, I guess the BoD don't know much more than we do, so they probably share our frustration. But if there's no news to report, we won't see an RNS; we just have to sit on our hands and wait.
I am starting to wonder whether the 4 existing non-binding offerors are each waiting for someone else yo make the first move. This might be a situation where you don't want to be first mover, lest someone else come in and trump your offer. Sure, we might have an auction type situation, but there are only so many rounds you can have. I might have a view of the value but I don't want to over or under pay. Whoever places the first binding bid may well set the ball park for the others. Once the ball is rolling the Mexican stand-off gives way to Game Theory.
My guess is that all 4 bidders know exactly what they would like to bid, but really don't want to be first. Plus, and this is increasingly important, gold's rise and stabilisation above $2,000 translates into more firing power. I doubt any of the non-binding offers were based on PoG above $1,800, and may well be closer to $1,600. The strength of PoG must increase confidence that stronger submissions are feasible; perhaps to the tune of 10% - 20% more than their non-binding offers.
All speculation of course but I'm looking for some explanation for the slow follow-up to the non-binding offers.
I was not trying to suggest that by non taking action it could be construed as insider dealing. That would obviously be a nonesense.
On a more realistic note suppose the warrants were exercised 24 hours before they were due to expire? That might be a reasonable basis for an insider to exercise without having a finger pointed at him/her. It would be difficult to accuse someone of timing a deal to take advantage when the only alternative is to lose the option. It might give a basis for exercising but possibly not for instantly selling. I don't know, but what I do know is that I'm getting deeper in this rabbit hole, and struggling to see the way out....
To be honest I can't really make my mind up on the options and warrants situation. On the one hand an insider exercising warrants or options would quite obviously have inside information on whatever is taking place. On the other hand by NOT exercising warrants or options an insider would have the same information (i.e. perhaps expecting a drop). The fact that we all know about the quantity and tenure of those rights mean that it is already in the public domain. And yet suppose a deal announcement is imminent, and two days before it's announcement we saw a rush to exercise or take-up warrants? How would that go down with the FCA? Would they take the view that it's OK so long as they resulting shares are not sold? Would it leave the insiders open to accusations of insider trading, even if the actions might be technically within FCA guidelines (if those actions were)? I'm just not clear, which again suggests that it's a legal clarity issue.
Bedtime reading on insider dealing:
https://www.handbook.fca.org.uk/handbook/MAR/1/3.html
To be honest I had factored in some dilution due to warrants and options being exercised. The fact that we haven't seen much happened on this front, and the fact that the placing last year was open to everyone, suggests to me that it's not just the share price that's influencing decisions. It may be that the legal advice says don't do it. Interesting debate. Any lawyers posting?
Forgot to mention. I'm now within spitting distance of drawing my state pension. Still having shares in a FI 'explorer' was not what I had in mind when investing in DES in 2004. Like you I had written RKH shares off, but still harbour a dream that they might actual give something back before I'm pushing up daisies.
Crofty,
It's been a while since I posted. However, while things remain fairly quiet I have a recommendation for you. I acquired a pair of Nordikas slippers last Christmas, and I have to say they are the best I've had. Shoe-like in quality and not exactly inexpensive, but a must for anyone with a keen interest in comfortable slippers.
ddd
ICB888
Ticks of agreement on all of your points. I baseline 65p but a genuine bidding battle would lift the valuation point, and maybe take it up 50% or more. 100p is very much doable if you get 2 or 3 throwing their hats in the ring. Gold getting through $2100 would also help. $2000 has been a psychological barrier for too long but a leap through $2100 is likely to get everyone excited.
As for warrants. Everything expiring is good news for existing shareholders. I highly doubt that anyone designated an 'insider' would be allowed to take up warrants. Even if they were I doubt they could sell without being accused of insider trading. My guess is that on completion there will be some 'achievement' bonuses voted by the BoD. Not enough to cover the disappointment over unexercisable warrants\options, but something to take some of the pain away. The FCA rules on market abuse are not black and white, so you can't definitively say that an insider is unable to exercise a warrant. It's one of those 'does it pass the sniff test?' situations. In other words by exercising a warrant at a certain point in time, is the person taking up the warrant using his inside information for personal gain? That kind of thing. My guess is it's a legal advice scenario. See Mar 1.3 on Insider dealing.
It does indeed look like 32p -34p is a plateau point. I did think it would be a bit more and a bit higher (36p - 40p), but it looks like the mm's have settled around here until the news flow hardens. Not that it will make much difference to the final asset sale price. Actually, on that point, as PoG increases the producers share prices will also increase. My guess is that may well also increase the chances of a paper based bid for either the company, or its assets.
It's Friday tomorrow, another week closer to getting a result.
I agree that 65p is a modest expectation given the NPV. It does not mean that I think anything above 100p is not possible. The PoG trend is encouraging at the moment so I do think something above this level is possible, given that the averages I used to get to 65p were based on a far lower PoG. 100p is certainly doable albeit with a lower probability. I'm also of the view that anything lower than 65p is possible, but again with a lower probability. My guess is that 50p or less is about as likely as 100p or more. Possible, but not in my view the most likely outcome.
I've not seen anything to shift my 65p share price equivalent baseline valuation for the assets. If anything the rune stones suggest that there is more upside than downside in that price, albeit I'm struggling to see anything beyond 100p. Upside drives include the strong PoG performance and continued interest - no news on more than 9 interested parties and no news on anyone dropping out either. I do regard the rushed AGM as a positive sign, as do one or two others on the board.
From a current SP perspective, as you know I've suspected 40p + to be a reach without something tangible on the RNS front. And the problem there is that if we get something really good we'll just get a re-rate. It may not be possible to buy between 35p and 45p; the post RNS price might just open at 50p. Who knows what might happen?
Interestingly, it's hard to see a short term downside. If, say, all the bidders decided to bail, how would that affect the SP? Would it drop due to disappointment about an immediate cash return, or increase due to NPV driven speculation on future valuations (i.e. the build option)? It might well be that latter until the next cash raise - the usual dilution arguments at play.
I've been weighing everything up but the reality is I'm none the wiser. Condor remains a punt until a hard bid emerges, or a project finance deal in the case of going for the operating mine option. Whichever the case with the robust backdrop of a strong PoG, there is everything to play for.
The bid vs. marcap discussion is really only relevant to companies with established cash flows and fairly widely understood valuations. Condor is not one of those. It's a small asset based outfit with massive potential but no current cash flow. Bidders will buy on the back of that potential. If they are interested in the company as a whole they might try and build a stake at low share prices, but if they are seriously interested they know that buying in bulk on the market would likely double or triple the SP and marcap overnight - lack of liquidity.
As we all know Condor's marcap has never (and still doesn't) reflect its future cash flow potential. The 9 NDA parties / 4 bidders will each have their own NPV models based on their own view of what the future holds. They will bid on the back of these and some speculation on what other bidders might submit rather than waste an opportunity by using marcap as a reference point. Also, until we are advised otherwise, its the Nic companies that are for sale (the assets), and not Condor itself. How would you construct a bid for each of the Nic companies using Condor's marcap as a reference point? How would you justify a bid for a CNR Nic subsidiary company to your own board using the marcap of the parent company? It makes no sense to me. When I've built valuation models the inputs I use are what I think the cash flows will be based on a whole range of forecast assumptions and scenario modelling. That gives me a range, typically a base case, worst case and best case. I would then bid within those outputs and wouldn't take much notice of a marcap that is plainly out. Indeed, a chancer trying their hand at a marcap based bid would likely not be taken seriously given that the whole object of the exercise is to get a true market value for the assets.
My guess at the moment is that after the first bid we will see others. It may well be a case of all 9 interested parties waiting to see who submits the first hard bid. Once we get one I reckon we might get a couple more soon afterwards.
In SP equivalent terms I remain at a base case estimate of 60 - 65p, worst case 50 - 55p, and best case 80p - 100p. The difference between best and worst could be 100% with competitive bidding being the factor most likely to lift the price toward the top end.
The market price of 36p by the end of April still looks on to me, with 40p possible. Beyond that looks tougher until the news starts to flow again.
My guess is that Condor would get a much better price for a full takeover of the company mostly in paper. It may therefore be that we get a mix of offers comprising of cash for the assets, hybrid cash and paper offers for the assets and/or Condor group itself. Perhaps even a full paper offer for the company. A full paper offer, or mostly paper offer, would need to be REALLY attractive (i.e. high) to presuade the board. Cash is generally king in these situations. It could be a pretty engaging decision-making process deciding between the different blends of bid.
Nice problem to have though.....
Some interesting comments towards the end relating to the 'sale of assets' vs. 'sale of company'. They exactly mirror my thoughts of a couple of months ago i.e. the assets are the Nicaraguan companies, plus we may yet end up with a paper based offer for the whole lot. MC also explains the rationale behind the assets sale in the context of the UK takeover code (i.e. 'rule of six' comment). It's worth watching the last five minutes or so - the Q&A section of the video.
For info $200m is around £160m. If we get a bit more option\warrant based dilution, to say 200m shares (I highly doubt we will get anywhere near full dilution), then that would equate to about 80p share price equivalent. Seems reasonable enough. Yet we know an NPV of $400m has been thrown around, and that calculated at a lower PoG. The more numbers you throw at it, the more difficult it seems to become. Ultimately, it's all guess work and gut feel. Even the due diligence guys at each of the bidding entities will no doubt spew out a different result from their modelling.
I rationalised a sale price a couple of months ago based on various assumptions about average exit valuations for assets over the past few years. At the time my expectation was around the 60 -65p mark (share price equivalent value). A lot of water has passed under the bridge since then. We (currently) have 4 non-binding offers and PoG has settled above $2000, and it's starting to look sticky up there.
I need to dig out the NPV calculations to make some better numeric evidence base sense of the current scenario, but my gut now suggests that we are more likely in the 70p - 100p valuation zone vs. 60 - 65p. 100p would probably entail a 'clean' exit (from a purchaser's perspective) i.e. any residual land acquisition etc., so I'm thinking more like 75p - 85p. Having stated that, a bit of bid competition heaves the finish line back upwards towards 100p.
With everything now finally happening 60p now feels pessimistic.
I'm not sure if I would attribute that much importance to the 'cease trading' comment given the 'Going Concern' paragraph context. It is possible that enough seed money will be retained in Condor to kick-off another venture, although I kind of think that MC has probably had enough of the speculative mining business. Personally, if I wanted to stay in the business I would go for a royalty type setup rather than stick with the explorer game. But then again anything can happen.
I saw the '36p by the end of April' technical trend forecast, and I do think that's entirely possible. It's getting into the 40s that I think will be more difficult. We'll see. An encouraging pre-sale RNS could turbo charge the SP, albeit my default is still the 'wake up one morning with a sale RNS and a big re-rate'. In the meantime it's good to see it heading back into the 30s. It always was a nonesense to see such a sharp drop on the back of a 'Sleepy Joe Biden' action. And it's not taken that much volume to take it up 10p.
I've bound to say that anyone wanting a taste should buy now. You'll have no chance when the wider market sniffs out news of an imminent sale.
The 5th could be an interesting day. I would expect some last minute juggling still taking place, although the bed and ISA window may have gone already (settlements etc.).
For months I've been expecting the SP to settle between 30p and 40p once the word got out that this is (still) potentially a 3 or 4 bagger in SP equivalent terms. I think the market is finally waking up to the prospect of some fairly quick money on offer. I'm still struggling to see it go beyond 40p. It's not that I think it's worth less, but more a case of the options\warrants coming in to the money, profit-taking from day traders, perhaps a reluctance to take a special dividend instead of a capital gain, and (despite the improved awareness) a continued sceptical view of CNR.
On the other hand, gold has just exploded past $2000 and MC seems to have a skip in his step these days. Notwithstanding my 30 - 40p view, it's still a strong buy for people who don't care whether it's a capital gain or a special dividend.
As for value, my base price is now 65p equivalent (not expected outcome). With what's happening with gold, and the growing excitement about the bidding auction, I think £1 equivalent might be within reach.
Bring it on, Mark.
Valuations of the assets are all over the place.
We've had the $100m to $200m estimate, albeit that was before there would much action on the bidding front.
We've also had mention of the NPVs being a reference point. At the low end it's the P&P of $86m, and at the high end $418m for the whole show. And they are all based on a world where PoG is way short of its current c.$1975 price, a sneeze away from $2k.
If is has, or about to, develop into a full competitive auction all bets are off. You can forget $100m - $200m. It's going to be $300 to $400m. Let's say $350m, or circa £282m. We won't get full dilution but we might get up to 200m, which is SP terms would be worth about 140p. 140p is way above my 65p expectation of a few months ago, but from what I've seen so far I now think 3 figures might well be doable.
Anything can happen now.
I doubt if even the May warrants will get exercised. With a good wind the deal will be done by summer, and I doubt if the market price will reach 40p beforehand. The market has always undervalued Condor, so why should now be different? As mentioned several times before, my guess is that we will wake up one morning to an RNS and a significant re-rate.
I'm guessing the "between $100m and $200m' was inspired by the FS:
IRR of 23% and a post tax, post upfront capital cost NPV of US$86.9 million using a discount
rate of 5% and price of US$1,600 oz gold (Mineral Reserve Case).
IRR of 43% and a post tax, post upfront capital cost NPV of US$205.2 million using a discount rate of5% and price of US$2,000 oz gold
If you go back to the 'LA INDIA PROJECT SEPTEMBER 2021 PEA EXPANSION SCENARIO
to 150,000 oz gold p.a.' (deck headline) the numbers change to:
IRR of 54% and a post-tax NPV of US$418 million, after deducting upfront capex, at a discount rate of 5% and gold price of US$1,700/oz.
So, one way or another, the buyers will enter negotiation with a 'safe $100m opening gambit, and CNR will have said f... off, we are thinking $400m. Neither side will get their wish list answer but it will likely end up perhaps around the $250m - $300m zone. If there is real competition for the asset it could go a bit higher, especially if there is confidence in $1900 gold sustaining.
Just my latest thinking on the situation, albeit I'm guessing just like everyone else.
It was illustrative, albeit I am now more optimistic about the eventual asset sale price than I was 3 months ago. MC will not give anything away for obvious reasons, but he is pretty clear about where in the the ball park the board's expectations lie. And it's not at the low end of the scale. We should all be thinking about where previously published NPVs are rather than off the cuff statements from MC. We will not of course reach those valuations but given the interest I now think we will not be a million miles away from them.
My own base case expectation is that the subsidiaries will be sold but, as suggested, a bid for the company could always happen; perhaps from a new player.
I was too optimistic in timelines. If anything, there might now be more interest (and more delays) than before. All being well this should bring a better price outcome. My earlier optimism was largely influenced by CT changes in April, but if we get a far better price the additional tax should (hopefully) be worth it.
As expected the market, the day traders, are not really allowing the share price to increase. I'm also aware of the fact that warrants and options might be having a effect on sentiment - who would want to buy a large chunk if all it does is to push the price up to a point where those options and warrants become viable? At the moment only the 22p tranche is a goer, and not much of one for that.
If I'm honest I'm not too bothered about the SP remaining low and can't really see it getting to the upper 30s with current day to day trading activity. As I've mentioned before, I think we will wake up one morning with the opening SP significantly higher than the previous day's close. It won't match the asset sale valuation but it will be in the right direction. Let's say the assets\subsidiaries are sold at 75p equivalent value, maybe the SP will be 55p. Market selling, profit taking and options\warrants exercising may well hold the SP below asset sale value.
I could be talking complete *******s, but thus far the market reaction has held no surprises for me. Condor remains a strong buy if you are prepared to wait for the distribution and not play it for short term market gain. Also, I don't agree with other posters on MC. I am of the view that things are rolling out quite nicely, despite the fact that I thought it might have moved a little faster. And we could yet see a new player come in with a knockout bid.