MTR the place to be17 Oct 2018 23:32
Some funding options posted by JD on Hot Copper after opinion / options asked for
.............Hi, Cashmeoutside and Guys,
As you say, there are lots of potential ways to fund this and I think that the DFS is going to be very robust which will offer MOD more options relative to marginal projects where funders require a much greater margin of safety.
I think that it is unavoidable that equity is required and we will have to accept some dilution - how much and at what price is the question and, obviously, what is our ability to participate in any CR.
As you say, there may be some opportunity for a funding arrangement with an offtake partner. This could be attractive for smelters due to MOD's clean conc. which can be blended with other dirtier conc.'s that are increasingly being produced within the Cu sector.
However, these deals also come with risks - for example, forward selling production could be an option but then this creates execution risk. Likewise, offtake partners may be willing to provide debt funding but again, I am not sure whether MOD will provide enough production to make this attractive for a smelter. Concurrently, it is clear that financial conditions within China (the most obvious source for an offtake partner) are tightening considerably.
Streaming deals could be an option, although from my reading, at present they are relatively limited within the Cu sector.
Whilst it "appears" that this is non-dilutive, there are often fish hooks to these deals that shareholders overlook. The main drawback is that these streaming deals are often for LOM including any exploration successes post-deal.
As we know, T3 is only a small part of the Dome with the deposit itself still open (for possible UG and the NPF) and with proximate potential ore sources to add to LOM.
IMO, the situation that MOD and shareholders will find themselves in will depend largely upon:
(1) Outcome of T3 DFS
(2) Results from drilling current Dome targets and T20
We can see from other sector participants such as SOLG that if the upside is large enough then majors will pay a premium to obtain a stake in the Company.
For example, earlier this week BHP paid a 30% premium to buy additional shares in SOLG and, when Newcrest bought their initial stake they too paid a premium.
If the DFS warrants it, MOD may also be able to increase the debt/equity component too, possibly to 50:50.
Personally, I would like to MOD management:
(1) Be flexible in their timing to raise funds for T3 if market conditions are not favourable - simply stating that they will focus on exploration until, in their opinion, the market is more fairly valuing MOD prior to raising the full amount of equity required
or, alternatively (contd )
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