The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
I think this is the key for me. The JV deal is basically a small option payment of $0.5M, which gives EUA ownership rights to the the whole area (see A1ex's map). Should EUA, or a new owner of EUA, choose they can pay the Earnout to exercise their rights to develop those additional assets. The partnership with Rosgeo effectively 'inks' the fact that EUA is collaborating with the Russian government. My instinct says that the Russian government would be unlikely to do so without knowing who will be in control of EUA going forwards. If that's the case then the conclusion of the FSP must be very close, roll on Monday!!!
AlphaOmega. I agree with you that signals only go so far. However this is unlike most businesses where the aim is to develop activities to grow future profits and cash flow and increase shareholder value through a higher share price. The nature and attractiveness of our resources is also very different to those others. I think the plan all along has been to develop the asset value by proving up resources and extending our licences and then exit rather than to become a significant operator (despite the SINO deal). This strategy has lead to a somewhat more binary outcome as it’s unlikely we’re going to develop our earnings and cash flows in the short term to support the existing share price. In that regard there has been much progress (licences, resources, FSP) and the hints then serve to support the clear strategy which is to maximise shareholder value through the FSP. Of course if plan A fails to deliver then plan B will likely involve going forwards with the SINO deal, probably also a very good long term outcome for shareholders based on resources and market pricing and forecasts.
I appreciate it’s very hard to remain patient, and that in the short term a higher share price would help everyone to feel much more comfortable. It’s hard to see the next action being anything other than the outcome of the FSP, we just don’t know when!
Hi RMR1969,
I agree, DS is clearly a very smart guy with significant M&A experience. I also think he has tried as hard as possible to give signals to shareholders whenever possible. The success fee basis is one of those signals and we have no reason to doubt this. As you say the interview, and no retainer statement, in October 19 covered CITIC and VTB but of course not UBS (who weren't engaged then). The Trading Restoration RNS on 9th July 20 refers to the success fee basis for UBS but doesn't explicitly state no retainer. Given the resources that UBS would have to commit to this process it would be unusual and a very big statement of confidence for them to proceed with a 100% success fee arrangement.
In any case there are so many positive signals about this process which has given many of us the confidence to sit tight and hold for the outcome. Like most i would love the big RNS to come soon but remain prepared to wait and supportive of both the BOD and the advisory team working on our behalf.
Have a good evening.
Good post RMR. I know that you’ve addressed this to ahjh111 but my own career in M&A makes me well placed to give my opinion. Further to the replies by Tigra, ThirdRock and Lancerman which I agree with......
My take on the chronology of our relationship with advisers is that CITIC, VTB and AC have all to some extent been part of the early-stage marketing and relationship building. I would assume that the success fees for CITIC and VTB are akin to Introducer Fees whereby they will get a small percentage of any final consideration based on introducing a successful Buyer. The early process must have progressed sufficiently for EUA to be able to attract and appoint UBS to take on the role of lead financial adviser. From this point onwards UBS will be driving the process and coordinating all other participants.
We can only take the formal statements on the fee basis for UBS at face value. My own experience would be that a lead adviser’s fees would probably comprise of (1) a small, time-based payment for some upfront work, in this case likely to be the strategic review mentioned in the 1 July 2020 RNS (2) a small monthly retainer, and (3) a large success fee linked to achieving the client’s objectives – usually a percentage of proceeds. The success fee would usually have a ‘ratchet’ so that above an agreed target level of proceeds UBS would achieve an extra fee being a greater percentage of the surplus proceeds. For the adviser the existence of parts 1 and 2 of the fee demonstrate the client’s commitment to the process but they would not represent a good return on the adviser’s investment in time. UBS will be in it for part 3 and will be highly motivated to achieve the ratchet and maximise their fees. For a sale above £1B, I’d estimate that UBS’s overall fees would be in the region of 1% and that 95% would be the success fee. It would be normal to call this arrangement a success fee based engagement. The fee arrangements stated in the link posted by Lancerman are significantly above normal levels. By the time they agreed their engagement letter and fees structure UBS and EUA will have used the information available to estimate try and estimate the likely sales proceeds.
DLA would be entirely different. They will have a much higher level of non-contingent and time-based fees with a smaller element of success fee. You don’t engage the lawyers and get them working unless you’ve progressed to a point where the chances of a positive outcome are high because it will be costing $$$.
Of course, there is never any certainty of a completed transaction nor of a high valuation but the signs to date (as regularly summarised on here) point to a pretty high level of confidence. I remain long and haven’t sold any shares since a small de-risking shortly after the suspension ended.
Like everyone I was saddened to hear of the passing of Gary and extend my condolences to his family, friends and colleagues at Eurasia Mining. RIP Gary 22.
We know that the total focus right now is on the FSP. The results and conclusions of the resources work are probably known and the ‘draft’ will be shared as part of the FSP and impact upon valuation. I suspect the BOD would like to conclude the FSP first rather than be drawn into issuing the resource update seperately. We’ve been guided to an update this year.
If we run far enough, then i doubt there’d be any significant pause in the legal work for Christmas but i agree with Crabby it serves as a nice incentive to push that bit harder to be done before.
I think everyone would like to have the comfort of regular updates, I wasn’t referring specifically to you. It’s just unrealistic within the FSP.
The resource update is an interesting one, if I remember back correctly the BOD didn’t rush to update on the licence news, in fact i think they were ‘pushed’ by investigations from Rowka.
Guitarman - whilst the Interim Report RNS on 30th September informed us that DLA had been recently appointed it didn’t actually say when. It would be reasonable to assume official appointment was during September. I suspect that DLA may have been on board a little longer before formal appointment. I also took this news as signalling (to shareholders) from the BOD that the FSP had progressed significantly. Whilst our BOD play with a straight bat it does seem to be important to them to keep us informed when possible. As an aside for those wanting updates, i think it is highly unlikely we’ll get a running comentary and the BOD have said as much.
There will clearly be some complexities with this transaction around approvals and possibly buyer/JV fundraising. The fact we have in house legal expertise may have helped progress the process a little further before DLA became involved. If i was to have a guess at how long from DLA’s appointment to completion i’d say 3-5 months. I suspect we’re coming close to the shorter end of this now.
I’ve also seen people questioning how hard DLA and UBS might be working on this and asking about their motivation. My experience would suggest very hard, pretty close to 24x7. It’s also highly likely that both will be largely remunerated on a success fee basis, i.e. no deal then a huge time costs write off. This also means that they make more profit by completing the deal sooner as they invest less time, they will not have any incentive (financial or reputation always) to unduly drag out the process. UBS are also highly likely to have a ratcheted fee - bigger sale price = bigger fee. My own M&A experience makes me very relaxed given the players on our team. The caveat to all of this is always that s*** happens and this is another factor that means dealmakers usually want to get things done asap.
Jambo, I'll definitely be deferring to you on the MM and public markets side. My experience was mainly private company not public markets. I'm always intrigued by the theories about MM tactics and collusion. Whilst my head says there's probably something in this, to some extent at least, I have no experience to confirm or deny.
Kudos on the trading, whilst I can imagine there's a buzz from the winners I don't think I have the cojones to do it significantly.
Jambo i think your post sums up AIM. Many AIM investors are simply chasing rainbows and some of the comments on these boards, if true, back this up and are pretty alarming. Personally, I think there are two broad approaches to AIM, not mutually exclusive: (1) research well and back your judgement by holding; and (2) trade - again requires good research and significant time investment to monitor and react. My career hasn't afforded me the time for option 2. I understand that everyone likes to see their portfolio in blue but if you're following option 1 it is pretty irrelevant here. Of course most of the concern over the daily price comes from the traders or those who arrived here later and have a high average, again understandable.
I'll deal with the first post stigma.....
I have been a long time lurker on this board and indeed many others. First invested in EUA in 2017 and doubled down on 24 Oct 19 following the CITIC/VTB RNS. I took profits in July, my own policy, but I still hold over 1m shares at under 1p. I will be holding these to the conclusion of the FSP.
My relevant personal credentials are a long career in Finance and General Management, including almost 20 years in Corporate Finance & Investment Banking. I have worked extensively in M&A and know DLA Piper very well (not the team on this transaction though). I have no inside contacts or knowledge. Whilst none of us know exactly where the FSP has got to at the moment, the biggest recent clue is the appointment of DLA, as many have already commented this likely indicates that we're getting towards the end. However this transaction is likely to be complex with fundraising for the purchaser or JV partner(s) and also the potential for governmental and/or regulatory approvals. My biggest comfort comes from the track record of the board/management and their alignment with shareholders.
A long overdue thanks to the posters who have shared their extensive research as well as those who have worked to keep up morale, not easy when people are overly focussed on the daily share price movements.
Sale party location preference: oop North. Formative years: Sheffield. Rum preference: Captain Morgan Spiced.