Member Info for Hounddog10

HarChris

They made $3.1m of capex into NLGM and $2.8m of capex into the “gold plant” at Singida. The Singida capex surprised me as I thought it was built.

Also remember on the VAT rebate that there is a quarterly corporation tax liability against which it will be offset (or if the rebate is in cash then that cash will effectively be used to pay the tax liability). The VAT rebate and the quarterly corporation tax liability are probably generally fairly similar in amount.

Metro’s strategy is quite strange but I think it is forced on them. They seem to be moving away from Rate Setter, back into commercial lending, which they recently downplayed, and into specialised lending. As said by NonPartisan you don’t need glittering branches for this. The branches are perhaps useful for garnering deposits but effectively they are only working one side of the balance sheet.

It is worth noting that, until very recently, Metro has spent its entire existence in an ultra low interest rate regime. It has also significantly benefitted from government support. In recent years it has had £3.8bn of TFSME funds from the BoE. This was about 20% of total funding and was at base rate plus about 25bps fee. Until H1 2023 this was super cheap funding but that has changed such that they have paid back £550m early. On the lending side about 10% of loans at 31 December 2022 were COVID related and government guaranteed. Metro has received £122m from government for loans losses so far this year. A charge otherwise they would normally bear. Further, the reason they are probably moving away from Rate Setter is that it is likely difficult to load too much premium onto low credit borrowers when rates are more normal and of course defaults are more likely even for very short term loans.

They are in a different world going forward.

Five eight

Thanks. Yes, I had noticed the discrepancy between £250m going in by way of new equity and debt relief and the fact that CET 1 capital was only to go up £200m. I had been pondering whether the fees could really be as high as £50m. However, it was a £1bn emergency refinancing with all sorts of banking advisers and no doubt a great deal of legal advice - so 5% is high but not beyond belief. A plain vanilla new topco structure and capital reduction scheme earlier this year somehow managed to cost them £3.3m and that really mainly involves the lawyers and accountants. The £50m will hit Q4.

When the 500m shares are issued £250m of new equity goes in (£150m new equity, £100m of debt relief on the Tier 2 bonds).

In the last webinar Eric said that in talking to the local people Shanta had had a very positive reaction. Rather than much resistance to the mine the questions were more about when the mine would be built. Presumably that was in Ramula. He also said that Shanta thought the permitting process would take 3-4 months from application, which if the case is surprisingly short.

Eric is always relentlessly upbeat, which is job, so I always take what he says with a certain amount of caution but it looks positive. However, this is Africa and we all know that even more than elsewhere politicians will be out for their slice of the pie for themselves and their cronies.

Yes. The UK regulation has a particular accent on treating all shareholders the same. Not the same philosophy elsewhere - and it is starting to breaking down a bit in the UK.

Not sure the existing bonds have change of control clauses. Or at least when I looked the other day at the EMTN Base Prospectus I couldn’t see anything. Don’t think it is common for Eurobonds except where it is a more complex instrument eg convertible. Might be wrong and the terms of the new bonds may be different.

A Relationship Agreement is going in place between Spaldy and the Company. This requires Spaldy to allow the Company to be managed independently and for the benefit of all shareholders. Normal stuff under the UK Listing Rules. Of course, the BoD will have to have regard to the views of the largest shareholder but he cannot dominate.

They are going for a Rule 9 waiver for Spaldy going to 30% and over. No doubt they have cleared it in principle with the Panel.

Yes, note that it is the PRA rather than Metro that has hired EY. Looks like they are determined to drive the situation to resolution,

I think the BoE are going to be quite mindful of the £3.2bn Metro owes them. Bailey cannot afford another screw up.

Yes, but it may be that the existing banks have now got a conflict - perhaps too tied to a deal involving the bondholders or large shareholders. EY may be coming in for independence reasons. The Board seem in a bit of a jam and may want to be very careful that they are seen to comply to the letter of their fiduciary duty in putting anything to shareholders.

Think of it like this. If you buy a house for £400k and you sell it for £400k your net worth (equity) has not increased. You just have a different asset. If you owe someone money they are not going to think that you are better able to repay it. Same principle.

I would add that they made a profit of £78m on selling the £3bn of mortgages to NatWest. That did increase net equity. This time, in a very different interest rate environment, in selling part of the mortgage book they will almost certainly incur a loss.

Esecallum

To increase a bank’s capital you have to inject additional capital into the capital base ie increase net equity. Selling the mortgage portfolio increases liquidity but does not increase net equity (and so the ability of the bank to absorb loan losses).

The benefit of selling the mortgage portfolio for regulatory capital ratios is that it reduces Risk Weighted Assets provided the incoming funds are invested in something safe (but unlikely to be very profitable). The problem is that you have to sell a lot of the mortgage book to make a difference to RWAs.

The £3 billion is just shuffling money from one asset (mortgages) to another asset (initially cash) in the balance sheet. Does not increase capital. I think the capital issue is now crystallised and any bidder will need to factor in putting more equity when bidding. BoE (through PRA) would look dim if they did not enforce their regulatory capital rules at this point - particularly as BoE owed so much money.

They have said formally three times this year that they would not raise new equity:

2022 Annual Report dated 15 March 2023 - in viability and going concern statements

Prospectus for new holdco dated 23 March 2023 - working capital statement

H1 2023 interim statement dated 31 July 2023 - going concern statement

Each of these go out 15-18 months from the date of the document. They are confirmed by a review by the auditor (PwC) and for the working capital statement also by the Sponsor bank (RBC).

Lot of formal due diligence. Inexplicable they seem to have got it so wrong.

Likely £200-300m equity will have to go in. They will have to announce something tomorrow or risk a run. If they have to liquidate the investment securities portfolio to repay depositors they will realise unrealised losses. SVB type issue.

Lots of competing interests - shareholders, bondholders, regulators, Shawbrook. Also BoE itself is the biggest depositor creditor - has given Metro £3.2bn of TFSME funding. Embarrassing if they don’t get all of that back.

AIM (indeed UK) stocks are out of favour is one reason. More specifically it is clear that there will need to be a dilutive placing - probably around £6m to take it to anticipated breakeven.

I have been following this stock since the Woodford days but baulked at investing because of the enormous overheads (they have now got that under control). I thought the presentation was very compelling (and the new CEO impressive) but as always you really want to see actual revenue rather than just licensing agreements. That will only start to come through at the back end of next year and if revenue is delayed perhaps even more equity will be needed.

I think there is a decent chance this stock could do very well indeed given very low m/cap and the agreements they have in place but there is probably a less risky entry point than now.

One point I was interested in was with France requiring the filter by 1 January 2025 what is the lead time for the manufacturers to start making machines with filters - 1 month, 3 months? - so that sales outlets have sufficient quantity of stocks. That would seem to be some fairly certain revenue to come through - but unclear how much market share Xeros will have in France.

Yes, thanks zcca77, forgot about that but would not have known how to attribute value to it anyway. However, as you know, in these situations it tends to be losses that crawl out the woodwork.