Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
@trion: When l phone up to" buy " or " sell " some shares in a company on the stock exchange it is exactly that .!!!
It is a "buy" or a "sell" from your point of view, but for every trade there will be a counterparty for whom it is the opposite. That's not to say that the relationship is a symmetric one, and in the example you give it clearly isn't. However, trades can become more difficult to classify when you are not dealing with a retail investor buying/selling at best - and even where the right answer seems clear-cut, you are likely making use of contextual information which the stock exchange itself does not possess or care about.
Small retail investors are at a disadvantage in other ways: level 2 market data and direct market access are two that spring to mind. I can also see why the buy/sell indicator can be annoying, but I strongly doubt that it is the result of any skulduggery - just the websites trying to do their best with limited information.
The number 15 perhaps refers to the maximum permissible yield of 15% which must be achieved by the initial bond sale in order to release the $2.5 billion revolving credit facility (RCF), together with some of the funds from convertible bonds which have already been sold.
@Myotosis: "The second tranche of bonds is indicated to be for $1bn."
Is it the graph on page 16 of the AGM presentation that you are looking at here? Because if so, I'm not sure that the blue bars necessarily correspond to a single tranche of bonds - the intended meaning might only be that they expect to raise $1bn in 2021, another $1bn in 2022, and $500m in 2023 (looking at how they line up with the dates below).
Not saying they couldn't do $1bn tranches if they were so minded, but I would have thought $500m makes more sense in terms of how the RCF is structured.
(Comforting to see, BTW, that the initial bonds are labelled as 'May - Jul' on that graph.)
Ironically, coal is mostly composed of organic material (whereas polyhalite is entirely inorganic).
£1 sounds about right if you think that the bonds will be sold at a reasonable interest rate, and that the build will play out broadly in line with the planned cost and timescale (both of which include what ought to be an ample allowance for contingency).
Granted that's not exactly a pessimistic outlook, and it would be fair to call out anyone who disregards the risks. However these are hardly outrageous assumptions, nor do they represent the top end of the range of possible outcomes (eg. finishing early/under budget, on course for 20mta, multi-nutrient premium etc.) which - if you really were being optimistic - would take you well into multiple-£ territory (albeit probably not by 2024).
The recent dilution has blunted the potential upside compared to what it could have been, but the underlying business case is as strong as it has ever been. Understandable grounds for nervousness until the bonds are sold, though.
@Myo: "achieving stretch target would bring the schedule forward by 6 months"
My understanding was that 6 months isn't even the stretch target - it is what they are flagging as a realistically achievable outcome now that they are using SBRs (qualified by the dreaded words 'up to', it must be said).
That would correspond to first polyhalite in May 2021, whereas the maximum stretch target is in the middle of March 2021. I don't attach much significance to the stretch target - it is just words on a piece of paper - but the 6 month figure carries more weight because of the technical reasoning behind it.
@SIPPn00b:
Well, it should help that they have been through a similar exercise twice in the last two months.
On the other hand, I'm sure they will be mindful of the need to get it right first time.
The impression you got is reassuring. Under other circumstances it might be tempting to wait until you need the money before borrowing it, but there is so much at stake here it is surely best to get the risk out of the way as soon as possible.
@taufour: "So it would involve a complex dance while the mooted interest rate is brought into line with the mooted customers, and if a consensus view emerges, then all the bonds get sold at pretty much the same moment."
What you are describing is essentially an auction, which is not an unusual method for selling bonds. If bidding on price then that determines the effective yield (which as with shares may differ from face value).
This can happen very quickly. What takes the time is preparing the prospectus, regulatory compliance, and marketing the bonds to potential bidders.
Beerbull, the offtake agreements look a lot better than allright. The original target was in the region of 7MT, and we're not far off double that now. This really is yesterday's scare story in terms of selling enough to make the mine viable, and it looks increasingly likely that output will be heading straight to 13MT rather than pausing at 10MT.
I can believe it might take years for sales to reach 20MT (if they ever do), but that's just as well because it will be years before the mine can produce that much.
@wwguk: "As the lending of the RCF tranches is of short-term, and their interests usually are ... lower than that of h.y.bonds ..."
In this instance I'm surprised that the RCF interest rate is lower than the long term bonds. To my mind JPM are taking on almost as much risk as the long-term bondholders, because most of the risk is incurred during the next 18-24 months. However, they don't get the benefit of being locked into a high interest rate for 7.5 years. If anything I would have expected the yield curve to be inverted.
There is a very positive message we can take from this. The possible downside for JPM is a loss of $1bn, maybe more. The expected upside is 8% on an average balance of $250m for a small number of years. They don't appear to be charging a large premium for the risk of project failure, and if they are at all representative of other lenders, that surely indicates that the bonds will be saleable at a reasonable interest rate?
Anyone care to suggest a flaw in this reasoning? I'm assuming that nothing goes badly wrong on the construction side between now and when the bonds are issued. Granted there is provision for a higher interest rate on the RCF, but under circumstances where it is at risk of not being repaid at all - in which case a larger debt is of limited consolation. Are there any likely scenarios where JPM get their money back but the long-term bondholders don't? Are there any terms in the deal which make it more attractive to JPM than the above would suggest?
@wwguk: "Hope they will start the preparation earlier to ensure the first poly in 2021,"
Note, however, that whilst timely construction of the MTS tunnel is certainly important, it is not actually on the critical path for first polyhalite (because transportation by truck is permitted for a number of months).
@casapinos: "Each $500 mill tranche of the RCF will need to be supported by EQUITY (my bold).mezzanine,subordinate debt and/or pref shares."
Are you sure about that? My reading is that the support is intended to come from senior debt (the "Take-Out Securities"), but that JPM aren't particularly fussy about how the money is raised - so what you are quoting is just part of a list of acceptable alternatives.
Granted, having those alternative options listed there in black and white might be a little unnerving, but it is actually a good thing that they are available: more options for raising the money means less risk of failure.
To my mind the main risk to the high yield bonds is if something goes wrong with some other part of the project between now and September. There is reason to hope that this is unlikely, since the engineering delivery has been good so far and the deep shaft sinking hasn't started yet.
There are also some upsides to waiting the extra months: production will be a less distant prospect when the bonds are issued, the project will (we hope) have been further de-risked, and a few months-worth of interest payments are avoided. That should result in a lower interest rate than would be achievable right now.
I think that's grounds for cautious optimism, but it would be premature to stop worrying about them yet.
@mrcautious: "I wish all LTHs in this share good luck but it is yet another share that steers me away from further AIM investment."
There is at least one incontrovertible flaw in your reasoning, which is that SXX is not traded on AIM and hasn't been for some time.
(Could also take issue with "no progress" or "dilution to keep the lights on" - in engineering terms the project is going full speed ahead, with potential to start producing well ahead of schedule. You're right about some being a tad over-optimistic, though.)
@bluerose: Do you know when we will get the result of the open offer please ?
Tuesday this coming week, according to the Launch of Stage 2 Financing RNS (30th April):
"Announcement of results of the Open Offer: 21 May 2019"
@Scotsman: Convertibles underwritten?
Have a look at the Launch of Stage 2 Financing RNS (30th April): "approximately US$400 million of the New Convertible Bond Offering is fully underwritten at launch"
($400m is the amount that is being used to raise new capital, as opposed to buy back existing bonds.)
Not totally clear about some of the terminology, but I was under the impression that they were being put on the market immediately (which makes sense because you wouldn't want to hang around having set the conversion price). Also, my understanding is that the bonds are due to be delivered next week.
@Yorkshireman: hope no further problems with tunnel
Problems with the tunnel should be quite low on our list of things to worry about now, partly because the schedule is less ambitious than it was, but mainly because most of the risk has been passed on to the contractor. Contrary to what some have suggested, aside from being a tunnel it's not remotely comparable to projects like Crossrail.
Where there is serious risk remaining is the sinking of the two deep shafts (but if it is true that they have a spare six months in their pocket then that makes the risk a lot more manageable).
@jonesrichard: "So we are in effect hearing from more than one source that the project is ahead of schedule, all we need is for the company to officially confirm that that is the case,"
Trouble is, if they claim credit for that now then every time something goes slightly wrong it becomes a slippage. This would be jumped on by the doom-mongers and is the last thing potential purchasers want to hear prior to the bond issue in September. There might have been a case for playing this card two weeks ago, but right now I think having some extra contingency in the schedule is more useful than trying to support the share price.
@LostInTheCasino: His feet should be held to the fire on this at the AGM.
It's a fair question, and I'd like to know more about the reasons for the MTS cost overrun too.
That said I've been quite impressed with some of the other achievements (like getting planning permission, and general quality of technical delivery), so I've got some tolerance for taking the rough with the smooth.
@theworldisenough: no government backing came
The company is - fingers crossed - on course now to raise the money without any government assistance. IPA guarantees are for where the money cannot be raised by normal commercial means. If everything goes as planned, the company will have proved itself ineligible.
Now I certainly wouldn't have been complaining if they had got the guarantee as originally planned, because us investors would have made rather more money than we will now, but lining our pockets isn't a primary function of government. What is in the public interest is that the project goes ahead, and it looks likely that it will. Besides, even allowing for dilution, we can still expect a pretty impressive long-term return if all goes well, even if it's not the jackpot that might once have been hoped for.