Member Info for Digittt

It started out as travelling in style, and became a bus? I moved to Surrey to avoid the buses. Would certainly want a party at £1...the wife would have to come too even though she doesn't know her ISA is heavy into SXX too.

Have family members who travel from London to Yorkshire on the Megabuses, so possibly have a particularly jaded view of buses!

Whaahaa....that's absolutely true!

ST2 will be an interesting point as it will indicate the bankers (and govt hopefully) have theoretically got comfortable with the risks on the project. Their risk appetite is practically non-existent, so if they can get comfortable with it, then anyone with higher risk appetite ought to be a buyer. That being said, buying it out would mean consolidating $3bn of debt once it's built up without EBITDA to support it, and company's don't like to do that.

Closer to production I'm certain someone will (at least try) have a go and will price it somewhere that splits all this lovely upside we've been waiting for with a bird in the hand vs an even longer wait pitch. Anyone's guess as to what a fair split would be and whether us PI's will have any influence over the the decision

NoEasy, thanks for the links. I thought I'd feed in what I'd seen on similar guarantees...I believe this may be relevant and a reasonable stab at how it might work, but can't guarantee that (ba dom bom). My experience is with similar govt guarantees but not these specifically, hence the potential for difference. The guarantees I've worked on are all tied into project financings though, so that's common.

There are normally 2 costs:
- Upfront all on close or often negotiated only on drawdown based on ~X% of the drawdown . The X% I've seen as high as 16%, and at the low end 7%. There's structural reasons for the stuff I do to be considered higher risk, so I'd hope for 7% or lower here. The X% is able to be funded by the loan, so the way to think about it is with a $100m facility with 10% premium, you roughly only get to draw $91m to fund capex and the balance of $9m is used to "pay" the upfront premium. Ie You're paying $100m, but you're only getting a $91m toy. You only really pay the $91m when you repay the loan. In the documentation you posted, that may be considered the guarantee arrangement fee...but I don't normally see that term specifically being used.

Ongoing guarantee fee - I've seen 40 to 75bps. This you see as a part of the interest calculation and paid every 6 months and can often be buried in numbers on the lenders side within their margin.

Hi QD18 - I too was there and remember the shades and crutches. I was the one who asked the question on what he would consider success in 3 years time. I had the eye patch, and hook for an arm.

I went for the exact same reasons as you explained so well in detail and wanted to get a sense of the good doctor. In the flesh I liked him enough, and sensed sincerity. I was however left uneasy about vulnerability - ie what happens if any of the folks the company are working with decided to be less polite/ethical in their dealings - would they steam-roll the Doc / pinch the tech due to weak collaboration protections? Also, how far would he keep chasing the science if it came at the shareholders expense.

Now I didn't make any hard conclusions and there's enough there for me to be interested, but I will say that I came out of the event and in following up with 2 other shareholders (who weren't there), I made it clear that I had decided not to add any further for the foreseeable future. They've taken the same position.

That's from a mix of uncertainty on my side of what I had seen, but also, unlike you I've gone early on my exposure and am already more pregnant at this stage than I felt I should be. If we had a flutter up to 4p or so, I may be tempted to scale back for now. That being said, I'm typically a LTH, so I'd probably find an excuse not to in any event.

Digittt

PS: Only time will tell if I should have instead gone for the humanized mice joke.

That is correct although they would have presented to IPA along the way, not at the end. IPA would have been involved to ensure structure in line with their needs, what they can bear.

Lenders contingency calc will include everything from delay (interest + running cost), any contract costs risk, any uncontracted costs risks, any libor / fx risk depending on hedging strategies, any other risks their technical adviser has indicated needs to be provided for. And if there are any early revenues included in the period the loan is being drawn down, lenders will force that to be covered by contingent funding / equity.

You would argue mgmt contingency provide for similar issues, but no mgmt I've ever come across has ever gone in taking into account just how miserable / depressing / risk averse lenders and their technical advisers are...as a result, the lenders ask is typically a lot higher. The hope is it gets beaten down to something reasonable.

And if anyone asks for MonteCarlo...shoot them. Well, maybe don't....By all means use it internally, but keep it away from lenders and their technical advisers who in my experience have a habit of getting very lost using it to create numbers that no one can recognize which suddenly throw up large additional requirements that they can't effectively explain.

SL the feedback from divermitch from CF is that the restructure will be required for dividends sooner. That's in line with what I would expect / experience. Lenders will restrict dividends until the project is complete and operational and they've had a number of debt repayments at least. That's when a project has a clean completion cut-off. With expansion to 20mtpa, it's more complicated and the lenders starting position in negotiations would have been no dividends until 20mtpa is signed off + a tail. Negotiations may have moved that but it's one of the points that borrowers can choose to give on and just accept...knowing full well that they would restructure a lot sooner (it's a free give to them). There will also need to be significant cash reserves that need to be funded as a result of the PF (DSRA, yes but I would assume some significant capex reserve to fund 20mtpa and a bunch of other to get the lenders comfy given it will be an operational asset with an active expansion development).

Given above, I can't see the company saying anything publically about dividends...well not without being super-super-cheeky.

That would have to be super-cheeky, as divermitch indicated, per SF2, no dividends until most / all the project finance debt has been repaid. The intent will be to restructure the minute there is steady EBITDA and where it smells like a comfortable corporate and typical corporate debt / bonds can be used without the project finance handcuffs.

a) You hope at that point they've negotiated some refund of the guarantee premia at prepayment as it otherwise effectively makes the SF2 debt very expensive.

b) Hard to tout dividends publically now, when the SF2 terms and models will have them locked up for a while. Suspect many of the lenders would expect and understand the restructure is coming as soon as poss, but you have to close the SF2 first.

Leverage in these circumstances typically based on cash equity in + irrevocably committed by investment grade entity or and backed up by an LC vs the debt...that's normal for start-ups and I have seen it continue for companies beyond the start-up phase.

Listing does give a little room to argue, but I'm fairly certain lenders will revert to cash / committed equity basis. 65% is on the top end of what I would expect, but the company mid-negotiations would say that...awesome if we get it.

Deal teams for key lenders will be clued up as anything as would be the team in govt issuing guarantee. They will have had at least 1 technical adviser on their side of the table, who also would have put together a detailed report on all key areas / risks / costs. They will have a lot more info than the public domain, so unless this board is full of insiders, they will have know more. Deal team though has to sell it to the credit committee who are a little removed...they will have been doing it for a while already building up to official committee decision. I've still though had a lender on the third deal he had participated in on the same project (completely diff sector) put his hand up and ask the equivalent of "so what is this polyhalite stuff".

Sure Cayman, happy to explain my rationale / or lack of it. I took the risk as I believe in the quality of the resource and that the desperation of the Brexit government will necessitate it to blindly support flagship projects including SXX. Without the current political mess, his view would have ultimately overridden my belief in the resource as I would have struggled to see the guarantee being received and the stage 2 financing being completed. If that comes across as a jaundiced view, it's from a number of years of banging my head against the wall with project finance lenders.

Golfer - I wasn't looking to irk the masses, but it seems I have. Repeating, this was dinner table conversation that he participated in as senior management at an active miner. SXX weren't trash talking their own project - they explained what they were doing, he asked some questions out of interest as did they of his projects, possibly while chewing on steak. He offered his view to me as he knew I had an initial slug, I've subsequently increased it significantly. He's not an engineer but has 20 years experience at miners. I take counsel from people I respect, he's one of them. The banker and commodity chap were both engineers, the banker earning a living by lending into miners and who we'd all love to lend into the project. I'll leave it there.

Don't mind if I do. This was dinner table conversation, no one was focussing on the weakest part of the project or doing full due diligence...it was casual chit chat learning about each others projects. I use the multiple references to keep myself grounded. But it is fun to dream.

He wasn't looking to invest, I was. I still did. But - as I said, he wasn't comfortable with what he heard about the material they would be tunnelling through and what he was being told about the stability. This was his instinctive reaction based on dinner table conversation...he wasn't grilling them on my behalf, although the event they were at they ought to have been in selling mode. I could also quote you the head of mining at one of the large investment banks I spoke to a year ago who wasn't a believer, or the contact at a large commodity trader who looked at it for them 4 years ago or so. Again, despite what I've heard, I'm in - but keeping my feet firmly on the ground given the risk. I believe this story has to succeed and be pinned high on the Brexit flagpole...but I've also heard success in mining projects being phrased as only 20% over budget.

Hah...he's very gainfully employed at a much larger miner.

There is risk all over this project. Forget about the question of whether the demand is there for the product (although that will still be a concern), this is all about execution of the development without there being ludicrous overruns and with the existing equity holders still holding a significant stake. I understand all the exuberance (and I am exuberant myself and heavily pregnant on the share) around the project, but this is a massive and complex undertaking and things will go wrong. I'm minded of feedback from a client of mine who sat at a dinner table with the senior SXX chaps earlier this year. He's a highly experienced and significant miner, and walked away raising his eyebrows as he wasn't comfortable with the way the ground stability and tunnelling was described...he wasn't about to stick his own money in. Doesn't mean there's a problem, but it gives you a flavour for the instinctive view of the risk. It should be obvious, no tunnel stability, then it's a very expensive or no project. The guarantee will be needed, if it's not supplied it may not be all over, but it means we will be paying a ridiculous amount for the debt we can get and you can expect a significant dilution event to coincide as they will need massive amounts of contingent funding to be available. Note: I'm still expecting an additional equity raise for S2...my hopes are for none, but the realist in me says there will be.

I've been thinking about the TorP's and it may come back to something posted about the other day. The terms of the TorP's are going to be structured to support what the lenders want / need. This commercially may not be the best thing ito cash value/ flexibility from the agreements from SXX's perspective, or the duration or other terms the buyers would like. So while those TorP's may be negotiated and primed, it's quite possible they don't get signed until the financing deal is closing. Their signing will be a condition precedent to closing of the funding. Given the terms, SXX won't want to sign the TorP's unless it's in the closing process of the debt...given that, they may not be able to talk about them at all until then either.

On the guarantee, the Govt can either direct lend (treasury prints money) or issue a guarantee. Here it's clear it's a guarantee. What that means is banks will need to lend the money (and at $3bn it's a heckuva lot more than 1 bank), and a large chunk of the amount lent will be covered by the govt guarantee. The lenders will have some exposure typically (and that's implied in the $2bn / $3bn gap mentioned earlier) and that means there will be full dlligence and full support required by off-take / TorP contracts supporting the amount of all the debt...ie $3bn. That's assuming it's all senior debt, there may be a mezz / junior piece in this but it will be treated like equity by the senior lenders - ie everything below them doesnt' see cash until they are being paid. It doesn't matter how much we dream (and I am a dreamer), without substantial off-takes and proven demand (to cover risk if off-take counterparty goes under), there will be no stage 2 and no effective govt guarantee. Note: Also I'm aware of one of the other big banks that looked at this not being keen as of a year ago...it wouldn't be a no, but they weren't rushing to support the project. That may sound negative, but to me it's just down to stage of life of the project and financing. I'm all in myself on this, and fully believe it's a vital part of the govt's brexit success story...well it may be the only part of that story.

Tall, slender chap? And haha - not me...I have worked before with someone who's now in their Treasury team. I know he's not the group treasurer, but trying to figure out how he fits into their team.