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Good interview. It’s very notable that Mark Fairbairn, who spends his life hearing about microcap miners and explorers, is visibly taken aback by the fact that KZG offers profitable production of 4 commodities within 6 months, for an mcap of £8m. You can see him trying to work out why investors aren’t already all over this.

Also of note, I saw that the new presentation referred to tantalum producing $75,000 per month revenue. I thought that seemed low and wondered if it was an error. Clearly it was, as Dennis was clear in the interview that it’s $750,000 per month. Excellent.

So it seems from that interview that “carry” in this case doesn’t mean profit share but rather “exemption from having to fund the JV pro rata”. That seems more practically useful.

I think there are a lot of pitfalls with this deal, which could lead to shareholders of Corcel losing out. I like Scott but wonder whether he is smart enough (and has good enough lawyers and deal advisers) to think through where this all leads in one or two or three years’ time.

One issue which occurs to me is that this deal separates Corcel’s underlying assets from its debts (Corcel will continue to owe the debts, but IBM will own the assets). That seems to create the opportunity/temptation for other stakeholders to ‘dump’ Corcel plc once they have no further use for it.

Another issue is that once the £1.5m carry expires Corcel is obviously going to be totally unable to fund 50% of the JV’s costs. The hope previously was that NPC would fund the development costs in return for access to Corcel’s projects. But doesn’t this deal all but eliminate that possibility? Under this structure, why would NPC fund Corcel’s half of the costs? Surely they would instead rely on Corcel’s default to push Corcel out of the JV. I guess a smart/tough operator with a great lawyer might be able to close off this sort of risk…

Full disclosure (not the first time I’ve said this but worth repeating): I am a former shareholder but not a current shareholder. If that makes you think I’m “looking for a lower entry” etc, please discount my comments to zero!

Not sure I agree with the ‘more’ debt interpretation, but crucially it isn’t “less debt”, which makes me think the finance RNS is still to come. It has to be doesn’t it? Is this in part an attempt to pump the price up a bit to get some finance away?

A carry typically means a profit share, ie if Wowo makes some money, Corcel is entitled to up to $1.5m of it. Hard to see how that works in this case though (not going to make any money in the relevant timescale) so query whether something else is meant

Mixed views on this. On the positive, clearly it’s good that *something* has been happening and that NPC are still involved/interested.

On the other hand, I’m not too sure about the substance of it. I think the main shortcoming is that it doesn’t actually deliver any funding to advance the PNG projects. The hope was that NPC would deliver this, but now the suggestion seems to be that there will be an attempt to raise money via a Singapore listing. Hard to see how that would raise enough, but perhaps the Singapore vehicle would target a big debt/equity raise. Definitely seems like by the time they are funded Corcel’s interest in the PNG projects will be much smaller. My other query is that this deal is not complete, and is still conditional on various things including the Mambare partner consenting. Even when it does complete, it doesn’t bring in the cash Corcel needs to pay its debts. So what is the plan with that?
Much to mull on

No, I don’t think we have. I wouldn’t be surprised if an attempt is made to tie the timing up with the proposed IPO. Query what will happen if in the meantime we have significant success at the 082 licence, as that could affect the economics of the deal

Because the POW deal isn’t done yet

I have realised that my post of 20:16 yesterday understated the merits of the POW/IPO route as compared with a placing. I wrote:

“So [under the POW/IPO route] our 14% of KSZ and LVR becomes +7% of Kanye plus £2m cash.

Now, if you compare that to doing none of the above deals and instead doing a placing to raise cash for drilling… even if you assume we could place at 2p, it takes a 20% dilution to raise £2m. And the placing route also does not allow us to increase our Kanye stake from 50% to 57%.”

I should have mentioned that under the placing route it is not only KSZ/LVR that gets diluted by 20% but also our Kanye stake. Therefore, under the placing route, current shareholders end up with 40% of Kanye, Cs 57% on the POW/IPO route

Good to have a positive outcome from the Ditau campaign. Clearly the key question is whether grades are better in other locations or at depth, which currently is simply unknown. Still, today’s news does seem to turn Ditau into an interesting and prospective project again

Agree that an ASX listing would give us maximum
optionality to choose how to invest in Kav projects. Then again, a Botswana listing would not leave us any worse off than we are currently. If you assume the IPO valuation would be the same in both jurisdictions, I guess I’d prefer ASX. On the other hand, if it were to be the case that we could get the IPO away at £7m in Botswana vs £5m in Aus I’d go with the higher valuation

They’re not a free gift are they, they’re just part of the economics - making a deal which (per my original post) would otherwise be unbalanced in Kavango’s favour more balanced

Well they’re at an average strike price of 4.9p so if, for example, they are exercised at a KAV share price of 5.5p, they will raise about the same amount as a typical placing. If they’re exercised at 9.8p then you could say the exchange of cash for shares is 67/33 in POW’s favour. Etc etc. Like I said, not entirely one-sided, and difficult to model in a simplified mathematical scheme such as the one I put forward

Well they’re equivalent to an option to POW so yes they’re one-sided in that sense (although, I think, not as dramatically as you suggest). The point I was making was just they they’re hard to model numerically

Yes, I agree about the warrants and NSR. They are not in my numbers. Then again the warrants are a two-way transaction

So, there have been a fair few posts today expressing negative views on the prospect of a Kanye IPO. My initial reaction was similar (negative). However, I have spent some time thinking about it and have come round to the view that, if you evaluate the POW deal and the IPO together, the plan potentially stacks up pretty well. Here are my workings:

ASSUMPTIONS:
- Kanye IPO valuation £7m
- IPO involves issue of shares equivalent to 50% of pre-IPO shares / 33% of post-IPO shares, raising £3.5m and giving post-IPO Mcap of £10.5m
- Kavango share price 2p, Mcap £8m

ASSETS OWNED BY CURRENT KAV HOLDERS PRE-POW DEAL:

- 50% of Kanye (£3.5m)
- 100% of KSZ plus 90% of LVR JV (inferred £4.5m)
- Total £8m

ASSETS OWNED BY CURRENT KAV HOLDERS POST-POW DEAL:

- 86% of Kanye (£6m)
- 86% of KSZ plus 77% of LVR JV (£3.87m)
- Total £9.87m

ASSETS OWNED BY CURRENT KAV HOLDERS POST-IPO:

- 57% of post-IPO Kanye (£6m)
- 86% of KSZ plus 77% of LVR JV (£3.87m)
- Total £9.87m

If the above could be achieved, the net effect of it is that we give up 14% of the KSZ and LVR licences, and in return we (a) increase our stake in Kanye from 50% to 57%, and (b) get £3.5m of cash into Kanye (our share £2m).

So our 14% of KSZ and LVR becomes +7% of Kanye plus £2m cash.

Now, if you compare that to doing none of the above deals and instead doing a placing to raise cash for drilling… even if you assume we could place at 2p, it takes a 20% dilution to raise £2m. And the placing route also does not allow us to increase our Kanye stake from 50% to 57%.

My conclusion: IF an IPO could be done on the terms assumed above, those terms (in combination with the POW deal are actually rather favourable. The numbers stack up and it means a big injection of cash to drill the hell out of the KCB.

Look forward to any comments.

What placing?

Very good update:

- production good
- strong development results
- cash UP from last quarter
- discussions with third parties about Matilda

The last one is particularly significant, in my view. As a relatively high cost miner operating in an environment of high inflation and lower-than-before gold price one might have worried that SRB would be losing money. Delighted to see they are not.

This update makes the share price look ridiculous, in my opinion

Ah yes, looks like your numbers are right

Hi mate, think you need to get the due dates from the Feb 2022 RNS, not Dec 2021

P.S. I don’t want to get drawn into this any more than I have and this will be my last message. I’m not saying anything about the future or what might or might not happen. I just noticed the board getting rather frothy again, but with no attention being paid to what is surely the big issue at the moment. I thought it appropriate, for the benefit of some posters who I rather like, to flag that this is worth looking at and keeping an eye on. That’s all I’m saying - nothing more. Obviously everyone must DYOR.