Member Info for goshawk250

I agree with analysis below. We knew this was on the cards from the ShareProphets article and from common sense - how an earth could a 1:1 equity raise at these prices be feasible?

An equity raise supported by MTL/Runruno would have been complicated owing to the shareholder agreement arising from the Solomon capital takeover bid. In addition, it would simply have been a transfer of funds from major shareholders to the bank without much tangible benefit for the major shareholders.

Could it be possible that the major shareholders will simply buy out the bank debt due at the end of March in the form of an additional loan. (Not sure if this is possible under the terms?) One aspect here that's been ignored is the shareholders mezzanine facility is also up for reorganisation at the end of the month. I'm wondering whether we'll see the debt split between the major shareholders and the banks (or alternative lending, I'm thinking of Mubadala here possibly with convertible loan notes).

As others have said, it's not really in the banks' interests to force the company into administration. It's certainly not in the major shareholders' interests to allow administration in the banks' favour either.

As far as what happens next, the RNS from last week regarding errors in the gold processing is the clue here for me. There was no great need to undertake an operational review so quickly, which the management knew was likely to come back with results casting doubt over the previously-stated efficiency of the mine. This for me was undertaken as a further bargaining chip: to show to all concerned what they can do if they are working at full steam.

Also remember the title of the SP article - "the continuing fight between Metals Exploration and its bankers".

I don't think a lot has changed for long-term holders - we knew this was the likely outcome and we didn't want a highly dilutive equity raise.

This is from Baker Steel Resources Trust, March NAV update:

------------------------

Metals Exploration PLC ("Metals Ex")



On 18 February 2019, Metals Ex announced that it had agreed the conditional rescheduling of its US$63.3 million senior debt facility with the final repayment date extended to 31 December 2020. The main condition precedent is that Metals Ex is required to raise net equity proceeds of US$20 million by 21 March 2019 of which US$15 million will be used to immediately pay down the debt. No details have yet been received regarding the equity raising.



On 27 February 2019, Metals Ex announced the results of its review of historical performance data at the Runruno Mine in the Philippines. This review has highlighted a number of errors in previous statements and in particular that the historic statements had incorrectly referred to the BIOX® circuit having achieved and maintained 100% of design throughput rate for extended periods of 2018. It is the view of the new management and an independent third party review completed by a BIOX® specialist that the BIOX® circuit has yet to reach 100% of nameplate design throughput and, on average, only operated at 31% of design capacity during 2018. The key to the success of Metals Ex will be whether is it able to raise the requisite equity to satisfy its banks and whether the new management can achieve the recoveries and throughput from the processing plant.

------------------------

Interesting that they specifically mention that no details have been received about the equity raising. I'd assume if they were going for a rights issue they'd have sounded out all major shareholders (not just MTL/Runruno) by now. In fact the NAV update seems pretty verbatim from the RNS releases, suggesting management haven't spoken to them. Something else seems to be brewing, although I get a slightly more downbeat sense from BSRT this month compared to last. I'm still in here with slightly under a million so hoping for some positive news soon!

https://www.jobstreet.com.ph/en/job-search/jobs-at-fcf-minerals-corporation-runruno-quezon-n-v/

Still lots more jobs going at FCF by the way, another one added today. Not what you'd expect if they were about to go bust.

The new charge documents are now available at Companies House, quite complex and opaque reading but interesting. Also, a corporate services company has been appointed as company secretary.

The charge document made me think about where the actual agreements are being made here and the rights of shareholders. One very interesting point is that prior to an expected default it appears the company can direct voting and after a default the 'offshore trustee' can. Reading through these and the RNSs, the wording is very careful. The agreement is between MTL's subsidiary FCF and the bank. FCF issues its own shares of which MTL is sole owner. However, could MTL sell some of FCF's shares - an equity raise - to make good on bank commitments? Possible role for Mubadala in this? Would obviously dilute our interest in the mine but might solve things long-term? May not even be possible under Phillipines law of ownership.

Anyway, I'm probably reading too much into all this but just a thought on another out of this situation. Worth taking a look at companies House to pore over the documents.

We're definitely managing to remain more optimistic here than over at ADVFN, where there is distinct whiff of despair. Not sure if the despair is from LTHs or day traders who want a lower price.

Seriously though, it's hard to believe some of the comments over there - one called footloose who's on the sidelines and is claiming the main lenders (which I take to mean banks) want a placing so that they can take over the gold mine, which they also think is doomed to failure.

They are also concerned about the major shareholders wielding power through the various short term loans and possible defaults - if they'd wanted to, Candy and Edwards could have called in the defaults on these when they had the opportunity ie. 31st Dec and Jan.

It is exactly this stalemate and debt structure which protects us here. The banks cannot call the debt in due to the country issue and the level of debt with Candy/Edwards. Candy/Edwards can't do much for similar reasons to the bank and the fact that debt defaulting would allow them to claim back a few millions in assets but would lose them 100s millions in equity.

A placing of the level suggested which is supported by Candy/Edwards seems unlikely as it would either tip Candy into compulsory takeover territory if evenly split or result in Edwards (or Candy) getting heavily subsidised shares in effect from major shareholders. The shareholders agreement gives quite a lot of protections here, which shouldn't be forgotten.

At the end of all this, I think we'll end up with a refinancing structure which isn't much different to before, but may include Candy/Edwards taking on more debt through an expanded mezzanine facility, shifting debt burden onto them rather than the banks. The banks will keep their safeguards including ensuring they get their money before anyone else.

A bit of a rambling post but I want to set out how I think things will emerge and provide a counter argument to some of doommongers here and elsewhere.

Best wishes for tomorrow Roy, may have to wait till next birthday for MTL to come good, but I for one have every faith it will.

Roy - good to see you back here keeping the faith.

I'm inclined to agree, it's good to see a range of opinions, positive and negative, especially those substantiated with facts, special knowledge or research. This is how we learn and try to make reasoned investment decisions. I think we're all wary of those who post brief comments with clichéd emotive content designed to inspire fear, greed or otherwise. These have been present at several points over the last few months, but particularly when the SP has been depressed and we're awaiting news, corroborating your point about people wanting to get in lower.

It seems quite clear there is no genuine current equity interest from these posters, a LTH is not likely to want the price to go down, down etc. and I wouldn't imagine there's a short interest in a very small cap like MTL. This makes me think, like you, that here's day traders who want a little drop to make their 20/30% and move on.

One thing's for sure, there are very few LTH on this board who will give you their shares at these prices. I for one am confident in my original investment thesis from December and have remained confident since, with several topups in the meantime. I see a very decent risk / reward profile. We do have risks, but these have diminished substantially in the last few weeks and the SP still doesn't properly reflect this to my eyes.

To pick up on Lee's point...

Meanwhile the new management under Darren Bowden is finally whipping the mine into proper shape. I hear that production is now processing 6.5 thousand tonnes of ore a day and the flotation circuit is much improved. He is, apparently, confident he can get the mine up to nameplate production by the middle of this year. That means our problems will be over.

6500 tonnes a day is 600000 over the quarter, vs. 490000 in the last quarter. If this is of even slightly better quality (ie. 1.6 compared with 1.53g/tn), and extraction rate is up to 75% (vs. 64%) we're looking at producing over at least 20k ounces, maybe even 22k+ ounces of gold this quarter. At current gold prices, that's at least $25mn over revenue, and maybe even higher $30mn of revenue.

I'm quite reassured by this, and I think like SP say, it's a negotiating position.

Hot off the press... what many of us have been saying, I think...

Metals Exploration (MTL), the gold producer in the Philippines, has announced an agreement to reschedule payments of $63.3 million to its bankers, HSBC and Paribas, concluding on 31 December next year.

What should be of most concern however is “a condition precedent” of a payment of $15 million by the end of next month and the demand to the company to raise $20 million in fresh equity.

Bear in mind that the company’s shares are currently capitalised at only £20 million and such a demand would necessitate at least a one for one rights issue but, given the time available, such a conclusion is unlikely.

The banks are playing hard ball but it is my understanding they have a problem they are not used to. Under Philippines law any change of ownership of the mine would mean the licence reverting to the Government. So not just in geological terms they are genuinely between a rock and a hard place.

Therefore I believe one should read the latest announcement as a negotiating position rather than a definitive agreement.

This has been dragging on but one might take some comfort from the fact that Nick Candy who controls 47% of the company and Graham Edwards who owns a further 19% have long experience of negotiations with banks.

Meanwhile the new management under Darren Bowden is finally whipping the mine into proper shape. I hear that production is now processing 6.5 thousand tonnes of ore a day and the flotation circuit is much improved. He is, apparently, confident he can get the mine up to nameplate production by the middle of this year. That means our problems will be over.

It is also significant that despite fund manager Ruffer dumping its holding the shares, at 1p, have held up remarkably well. Do not despair.

That thought crossed my mind too, that this is possibly a ploy to get an injection of capital via a loan from MTL and Runruno ie. here's what the banks want, give us a loan to repay the entire capital or see your holding diluted?

An alternative is as a few have mentioned before ... setting this up for refinancing through a different provider (thinking Mubadala here) ... or perhaps a takeover bid?

I also think that with so many large vested interests (the 75%ish) a placing which at current prices would mean a 2x dilution of stock seems implausible. This seems to be an opening gambit with a middle way surely likely to emerge.

Remember Lee's point though regarding operational proceeds. 1) They have 2992 ounces of gold unsold left over from last quarter, worth approx. $4mn. 2) If this quarter is proceeding as planned with no significant incidents, they may well have a substantial pot of gold by the end of March to have sold.

This would certainly reduce the necessity for a large placing (I'm not disputing that this is likely to form some part of the payment by the way) but I think it's misleading to suggest they're likely to raise $20M by a 1p placing - definitely a worst case scenario. More likely is a placing of $5-10mn I would suggest at 1-2p. Still some short-term pain but nowhere near as bad as worst case. A loan from MTL/Runruno is also a possibility.

Good point Lee, didn't think of that ... they definitely could use this quarter's gold production to pay off the $15mn to the bank and $5mn in reserve with minimal need for placing or loan from MTL/Runruno.

Generally good I would say... in that we have some certainty that the refinancing will be completed and the banks are supportive. The interest is not much higher (libor +6%) than at present, but does increase. Comparative to other AIM companies, I would say the interest rate is low.

But... the banks clearly want to see evidence that the new management can implement their plans to improve the mine (ie. the backstop), on the other hand DB et al. are clearly confident they can achieve this otherwise this condition would not have been added.

We will also see a equity raise (probably placing) by the looks of it, but we have been in this situation before (ie. 2016).

This is just on a quick read, so may have missed something!

Certainly been some hefty purchases the last few days and mostly the buys and sells seem to have been pretty evenly matched; so it's annoying to the share price drifting, but I guess that's the way the MMs make money and will mint it should we get the good news we're waiting for.

Just some thoughts on Ruffer:

1. since their confirmed sale of 3mn on the 25/1, there have been approx. 125mn share transactions. From what I've seen, most days buys and sells have been fairly evenly matched, so we can say with a bit of confidence there's been maybe in the range of 50 - 75mn sales during the period.

2. We know that Ruffer had 101mn shares following the holdings RNS, equating to 4.91% of the entire stock.

3. As I understand current AIM rules, they should be disclosing every time they cross a percentage boundary above and inclusive of 3%.

4. Their next boundary would be 4%; with 0.91% gap, this equates to approx. 19mn shares and to get to 3%, approx. 40mn shares.

With at least 50mn likely sales since last notification, this makes me think that Ruffer is not the main driving force behind the fall in the share price, as I'd expect them to have easily offloaded 19mn by now if this is their strategy. All this of course, does assume they're notifying correctly.

More likely, I think we're just seeing the normal AIM pattern of day traders or profit hunters getting fed up of a share, as well as some stop-losses being taken out.

I'd rather think it was Ruffer off-loading, as it suggests once they're done we will go up, but I feel this may just be wishful thinking on my (and others') part. Although maybe we'll get another holdings RNS soon which will show the wishful thinking to be correct!

In any case, I'm still patient, and am hoping for the news flow to start again soon. Reminds of the first couple of weeks of January when we were in a similar position after the finance RNS and had a similar drift - wished I'd topped up then, so may put some more in soon before the expected good news.

R1 - I think Adam and Jack have given some useful advice and a good reminder of the positives here.

The main bull points are, some as Adam said - 1) New experienced CEO and team, 2) ability to ramp up operations markedly to meet debt obligations short-term and turn a good profit long-term, 3) reasonable quarterly update, given recent problems, but plenty of potential to improve, 4) supportive shareholders and lenders.

The main bear points are, 1) short-term uncertainty over refinancing, 2) previous issues at mine (ie. potential to be rectified?), 3) dependence on major shareholders to keep up with loan repayments.

I think those of us who have been in since the pre-Christmas dip (and before in the case of CV, Pharma, et al.) are fairly reassured of the bull points and like Adam said see an opportunity, especially on dips, to improve our position here, given how undervalued we believe it is at present and the likelihood of good news flow (the likelihood being the rumour). However, any position comes with risk and with the present uncertainty, it may be that it does dip and test previous lows, which was alluded to by the BSRT February note.

I find this BB really helpful for exchanging views, facts and information and we benefit from the knowledge of several LTHs. Unusually for these BBs, my experience has been that most posters don't try to ramp or de-ramp. Ultimately, we all have to make our minds up about the risk/reward profile of a share ourselves from various sources of information about which we need to make a judgement regarding the credibility. I'm sure like many others, I find I ascribe more credibility to posts if they are substantiated with more detailed evidence or facts, for example, and there are a good many examples of such posts if you look back.

As for myself, I'm happy with my position here and I'm sure with a little patience your position will also prove to be rewarding, if you remain happy with the risk-reward profile.

I agree with the other LTHs - just have to be patient here for the next few weeks.

Things are certainly moving though - there's been 14 jobs advertised from them in February so far (https://www.jobstreet.com.ph/en/job-search/jobs-at-fcf-minerals-corporation-runruno-quezon-n-v/).

I also notice that the website is now fully up to date - with director info, management, the sustainability report on the top bar etc.

In the current refinancing environment, certainly looks to have been put up with some other intention.

Is the company you're thinking of something like this?

"Sociedad Minera de Santander – Minesa, is a Colombian gold mining company focused on the development of the Soto Norte project which is located in the department of Santander in north-central Colombia. We adhere to world class standards in safety, environment and operations.The Soto Norte project is currently in the exploration stage, producing the technical, environmental and financial studies required for the development of a world-class underground gold mining project.

We are committed to generating value for our employees, communities and shareholder, and this is reflected in our development of a sustainable operation which respects the environment and the safety of our people.

Under these guidelines, we have adopted the goal of becoming a leading company in responsible mining and a driving force of national and regional development."

I'm still slightly sceptical of the takeover some have suggested by Minesa/Mubadala (DB's old company) because of all the vested interests (Candy/Edwards) with large stakes in the business. But then, is a Candy (possibly joint with Edwards) takeover possible given previously burnt fingers with the Solomon offer?

Presumably if it was an external takeover we'd be looking at a fairly substantial premium to current shareprice to pay off all the various major parties who have invested substantially. Otherwise a Candy takeover would imply less of a premium given his current stake (not sure what the shareholders agreement says about this though).

Certainly an interesting angle and would be great to hear others' views on this.

Just noticed this up on MTL website company news - https://www.metalsexploration.com/company-news.html - FCF Sustainability Report 2018.

Interesting that it's only just been posted, but looks to have been written by previous management. Perhaps something lenders asking for given the timing though?

Some nice nuggets of info on there regarding the turnaround and good to see they think the upside will come on refinancing (although frustrating this will still take a while). Also nice to hear CEO is confident in rapidly fixing production issues.

No mention of Ruffer though unlike previous mention of offloading by a so far unconfirmed holder.

Still just a preview of the acting performance to come I suppose Roy, but nice to see a major holder thinking along similar lines to us.

On 30 January 2019, Metals Ex announced its operating results for the fourth quarter of 2018. 11,016 ounces of gold were sold from its Runruno Mine in the Philippines, compared to 10,522 ounces the previous quarter though still well below the 25,000 ounces per quarter target. During January 2019, the Investment Manager met with Metals Ex's new Chief Executive, Darren Bowden, who appeared confident that there were no fatal flaws with the mine and believed that he could turn around the operating performance at Runruno fairly rapidly.



During January 2019 the share price of Metals Ex more than trebled on the AIM market of the LSE after falling 73% during December 2018. As such at 31 January 2019 its share price was 15.5% down from the beginning of December 2018. The shares are likely to remain volatile until Metals Ex is able to complete the refinancing of its loans.