Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
@SlurmsMckenzie: Both an equity issue and leasing deals were listed as possible options in the RNS of 6th September and reiterated on 12th March, so I don't think there is any reason to doubt the FT's claim that Sirius is assessing them. "People with knowledge of its plans" may simply refer to those willing to do a minimal amount of research.
You might want to infer from the article that these two options are the leading contenders for raising the finance, however it doesn't actually claim that.
(My reading of the RNS of 12th March was that none of the options are completely off the table, but of course that does not imply that the four options are equally likely at this point in time.)
xxdodgerxx: "I suspect HMG has failed to uphold its commitments that I am sure will come out in the wash,"
If Sirius is able to raise the money without a guarantee then HMG doesn't have any commitments. Similarly if it needs a smaller guarantee than originally envisaged. That's not a problem, because the guarantee would have been at commercial rates.
That might conceivably be a reason for Sirius taking up the conditional offer. Once that was on the table, if it required a smaller or no guarantee then the previously-envisaged arrangements, I can imagine that would make it difficult to argue that the larger guarantee was needed.
PAAA - Do we need the MTS up and running prior to the start of production? I thought we were allowed to transport the polyhalite by road for the first 8 months (or has that changed)?
I'm not even sure how you would make a distinction between first polyhalite and production, because the planned ramp up is gradual and starts essentially from first polyhalite. Perhaps when the first of the continuous miners is brought on line?
All other things being equal: less debt, obviously.
In any realistic set of circumstances where there is a trade-off to be made: it depends, and it would be a mistake to optimise for one parameter in isolation.
(However I don't disagree that more dilution would at least have the consolation of less risk.)
The current share price and the number of shares in issue are observable facts. If the current share price is 19.73p then that normally means at least one share recently changed hands at that price.
The market capitalisation is the value of the company implied by multiplying the share price by the number of shares in issue. As such it is only a hypothetical value, and does not necessarily have much bearing on what would happen if you were to try to buy or sell the whole company.
Of course, when deciding whether to buy or sell at a given price, investors could very reasonably start from what the think the whole company is worth and then divide by the number of shares in issue. Value investors generally do this, traders not so much.
Nice idea, but if extra funding has to be raised as placing (as opposed to debt) then that will be because there is a need for it to be 'risk capital' - the first port of call if things go wrong, so providing a safety buffer to lenders and other investors. This can only be done when it is not yet known whether the risks are going to materialise.
(Put another way, if we could wait until shortly before the start of production then there would be no need for a placing, because the funding could likely be raised as debt.)
"a revelation of extra funding when the mine was nearing completion would have caused much less stress"
The increase in that component of the budget became inevitable the moment the contract was signed, and known not just to Sirius but also to the contractor (who would have their own financial reporting imperatives). Difficult to see how this could have been kept secret for a couple of years, and I think it would have reflected very badly on the company if it had tried. I don't doubt that the tactics you describe are used to some extent in this and most other projects, but it is a game that can only be played safely with unknowns rather than hard numbers.
What could plausibly have been forced was the decision to transfer risk to the contractor at extra cost, but whether that's the case I wouldn't like to speculate.
Massive increase in cash burn certainly, but what are you expecting to drive higher losses? Will they not be able to capitalise most of what is being spent?
The total level of senior debt is a somewhat separate issue, and I did wonder about that too, but not sure about debt servicing being the reason - he seemed open to other forms of debt, which would presumably be more expensive. Given that he's a former investment banker, his statement about $3bn being about right could be an indication of what he thinks the banks would consider to be an appropriate distribution of risk. Alternatively, it could be as simple as not wanting to unpick a deal which is mostly in the bag.
Regarding the IPA component, my understanding is that they will only guarantee that which you have been unable to raise in the normal commercial manner. Therefore, if $3bn of senior debt is required and $1.5bn has been raised without recourse to an IPA guarantee, wouldn't the amount that can be guaranteed automatically fall to $1.5bn? (And would that not be good news, since the IPA guarantee does have a cost attached to it?)
laurenlouise: "make some assumptions about ramp up and ramp down over the ten year period"
Modelling the ramp up is absolutely the right thing to do, because it's important that the peak debt remains manageable. But then a ramp down? I don't think that's a remotely reasonable assumption to make, at least for a product like this one. If it were normal practice to require that standard of proof you seem to be asking for, I doubt there would be many businesses that could borrow at all.
laurenlouise: "my point is we have to sell 10mtpa or 5mtpa ....not dig it out.....but sell it...."
To quote from the RNS of 20th July, the "Company's aggregate peak contracted take-or-pay sales volume increased to 5.7 Mtpa"
Now I for one will be quite disappointed if that is all we ever sell, but even making very pessimistic assumptions the worst it does is to put our production costs up by about 75% from USD 32.6/t to USD 57.2/t. That plus the lower sales income would cut deeply into profits for sure, but I'm struggling to see how it would make the project unviable, even taking account of the need to make interest payments.
laurenlouise: "ask yourself how many mpta we have to ship to break even and compare that to the ramp up of the current torps.....no where near break even and be in a position to make interest payments"
Are you sure about that? The expectation is for margins of 70 - 85%. Granted that probably assumes 10 Mtpa production - but even at half that, and pessimistically assuming that all overheads are fixed, is that not be enough to make what most companies would consider to be a very comfortable operating profit?
The single share trade at 16:35:17 was the uncrossing trade (UT), so the result of the auction held at the end of the day which fixes the closing price. It was at the usual time for that auction - about 5 minutes after the close of the market - and is different from what would normally be meant by the term 'after hours trading'.
As for why I can only guess. Automated trading has to be a possibility, although you would think there would be a cut-off below which the computer would be told not to bother. Interestingly the midday auction had a volume of 2,999,999, so you could maybe imagine this being netted off against a round number leaving an order for 1 share floating in the order book. Or maybe someone wanted to make sure that there was a well-defined closing price today for some reason?