RE: The gloves are well and truly off……17 Nov 2022 10:02
If BHP were going bonkers over a 0.5% royalty deal then they'll go batsheeet crazy if SOLG sell 25% or 40% of Cascabel to a competitor or players like Gina or Maxit.
It's all very well saying we want to do this and we want to do that... but at every turn you are either going to see a bid or alternative presented by BHP or you'll see BHP walk away. That event has yet to unfold but it's coming as you can't cut the Alpala cake up and expect BHP to just sit on their hands. So any move to monetise Cascabel, whether minor or larger is a provocation and likely a deliberate one by the new SOLG team.
BHP don't have to do anything until the new SOLG team present the results of the strategic review or a part sale deal which will have completion and get out clauses etc to allow BHP to counter offer as that's all part of the plan/game is it not?
BHP can't really bid until they see what's tabled. The question is...if they dropped an offer onto the table tomorrow for CGP then that potentially scuppers the Merger and AGM plans. That's the only spanner that could be thrown into the works. Or... NCM could make offer for CGP. Trouble is, once you end up with 15%, you've declared your intentions and the other 85% could get very expensive indeed... so I think it unlikely.
If we forget about BHP entirely (hard to do) then let's take a 30% stake sale of Cascabel as a starter. Let's go with $700m as example. Great... we have $700m in cash, value put on broader 70% but .... we still have $2bln+ of funding to sort. The market is going to crucify us for that potential debt burden. In fact, based on $3bln Capex, you could flip it the other way and say 70% sale and SOLG retain 30%. SOLG bank $1.3bln. $300m gets spent on exploration and $1bln goes to funding our stake share in Alpala/Cascabel. I'm sure there's advisors fees and tax implications that can eat away at $200m with ease, so really it's more like $100m for exploration post that event.
I can't see BHP allowing any of it... but for me, it only works if SOLG sell a large chunk of ENSA. Retaining 25% to 30% is just about doable but open to potential horrific cost overruns which as per Turquoise Hill debacle... can see $3bln Capex become $6bln. Block cave to that depth is not straight forward and the market will take the view that it can't be done until it is proven so rerate will be 5 years away. Not good for LTH's.
All SOLG need to do is deliver a deal that looks good value for shareholders and then see what BHP offer as a counter to that. The danger is, SOLG present a maxit/Gina style deal which is not great and BHP then just offer something minor above that.
It's either going to play out and deliver 50p+ (poor) or it's going to go Noront style and deliver 100p+. The assets are not in question and the PFS shows that 75p to 150p all doable dependent on which numbers you take on board... copper at $3.7 or copper at $6 makes a huge difference and lets face it, in 2027, copper is not going to be $3.7!
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