RE: Dugbe4 Jun 2020 10:36
This is a very interesting development to say the least. At face value, it looks questionable. However, rationale is clearly stated: “allowing the Company to develop other prospective strategic opportunities to capitalise on the platform we have built through the exploration of potential M&A opportunities.” (i.e. ARX cover all costs at Dugbe, HUM spends elsewhere). This raises 2 main things for me:
1) We are pending updates on other opportunities. Whether that be extended LOM, Cora, or other. This will all take investment – hence why net cash positive was stated as end of 2020 rather than this month (let’s see on that one!). I’d also expect these to be more near term and therefore value accretive to SP.
2) To engage in Dugbe & above (as of yet indefinitive) other opportunities would require a prohibitive amount of capital.
Therefore, management viewed a form of JV structure as the best option.
I can only assume that mgt views these “other” development opportunities as manageable in a minimal dilutive sense. Whilst we linger at <30p, the last thing we want is dilution or a large debt package. It’d wipe out current shareholder value and that is our (my) priority.
My hope for this is that ARX can cover all development costs for the next 2 years, during which time HUM is able to rack up some cash & expand via it’s other smaller/local opportunities. 2 years from now (assuming gold still >1600), I’d like HUM MC to be at least a multiple of where we are today. At that level, if we needed to raise 100 mill (debt alone or equity an equity element) we would be in a much better position to do so without wiping out shareholders. Especially as by then, with gold having maintained a higher price, the market would be considerably more bullish and favourable towards financing a gold producer, whereas that is still not the case now.
Consequently, view this form of agreement as in the mid-long term interest (i.e. 5yrs) of current shareholders.
The bothering part for most of us is not the fact that this is an earn-in agreement. I somewhat support that. The bothering part is (a) mgt will gain a huge private stake in this, beyond what they already hold in HUM, and (b) 49% is a huge stake for a role that doesn’t even assume full funding.
Clearly mgt will have invested a max of 1 mill into ARX. Clear? Yes, as that’s >39% of the 2 mill that ARX can offer immediately without result of further funding needed for the other 8… Equally, the timeframe does motivate them to get their finger out and work on this.. So at least there’s a skilled & committed team behind it all.
Not the best, but far from the worst in my mind
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