Member Info for observer842

That was an ironic LoL. Not sure how you denote that on here...

You are right @Bannor, and everyone would do well to listen to your analysis of my style: I typically post positively, highlighting what I see are the positives about a share, the what might be's - not dwelling perhaps as much as I would if I were writing impartially. It's a conscious decision I've made to generally post positively or not at all.

As to the $15m rather than $4.5m. My take is that $4.5m would have been enough to block the re-domicile, the remainder was to enable the takeover which never happened and we returned a large portion we never spent, and left the rest hanging round our necks constricting tighter and tighter. LoL :-)

@Bannor - I'm pretty certain it was the falling Lithium price, and accompanying market sentiment, which messed up BCN's CapEx raise, and prior to that plans with NextView. I'm referring to BCN's and EMH's falling share price. Not our JV's. Rising or at least steady Lithium prices would have held up our market cap and the $15m of debt wouldn't have been such a millstone - we had a taste of it when BCN went to 140p and EMH into the 80's. Now they're both pretty screwed at the current lithium price, EMH more so than BCN if I recall correctly. I didn't predict these lithium prices. I'm sure you didn't too, and our Bod certainly didn't, given our (stalled) go alone Lithium plays in Argentina and Australia. Fortunately (for now!) we pivoted to iron ore.

Lithium will recover, and hopefully both EMH and BCN + our JV's will benefit from this. Yes in medium hindsight we shouldn't have borrowed $15m to try to takeover BCN to fulfil our Tesla commitments, but in long hindsight, i.e. from now, if we'd have succeeded we might be selling Lithium to Tesla today and both BCN and KDNC shareholders would be less angry with their respective BoD's for IMHO something no-one invested at the time predicted - falling lithium prices...

I'm comfortable we have different views and interpret history differently. Diversity is good, right? :-)

Ob.

LoL @Bannor. Yes, that'll be my HOWEVER. Falling lithium prices knocked us for six. $15m wouldn't have been a problem otherwise with an increasing market cap. If I would have thought lithium prices had a chance of retreating back to $7.5/kg from where they were at the time I'd have been out of KDNC like a shot. Sadly not... Now if only we'd managed to "merge" with BCN in order to force them to fulfil our Tesla commitments, we could have been producing by now. LoL.

@Ivy: "If we had sufficient cash to cover outgoings and withstand any further delay I would be more relaxed."

This is good discussion as it's giving me insight to why some were selling during a period I was buying - due to differences of opinion.

My understanding is that it is quite reasonable for a company of our nature to have a certain fraction of the company's NPV as debt, perhaps 20-30%, which we can use to leverage our investments whilst minimising equity dilution. HOWEVER. As we know should our capital backing this and consequent ability to repay shrink sufficiently that this percentage debt increases substantially, a whole world of pain can ensue, as was the case during the past several years amongst a backdrop of falling lithium prices heavily impacting our lithium plays (primarily Sonora and Cinovec).

Presumably you'll accept that there is an inflexion point where the market cap supporting an equity raise is such that it is more logical to sell assets or raise debt (if possible) than it is to dilute the company? I believe that happened during the period you were advocating a fund raise, and I was advocating we sell assets, and the BoD appeared to agree, and especially so as time went by and the share price reduced, though making you even more adamant that your assessment that we should have raised earlier was correct, and presumably giving you confidence to continue selling believing the BoD to be naive.

In terms of feeling "relaxed", although I certainly wasn't feeling it, I was cognisant that if we abandoned Amapa before we got our 20% we would get back our $2.5m which would be close to repaying all our debt should we want or need to. This gave me confidence to continue buying strongly in the 3's and again in the 5's. Presumably you were still selling?

I hope the above isn't sounding too much like "I was right" - "you were wrong", far from it. In hindsight I too should have sold down from 9p to 3p, and bought back at 3p to 9p - but I never was any good at catching a falling knife! :-)

Also, I've no idea what the share price will do before next news. AIM is too unpredictable!

Ob

@Dallas. I think it's simply a difference of opinion of how the market works. @Ivy appears/ed to believe we should attempt to raise funds *before* good news, which naturally (for AIM) would have been at a discount to the prevailing share price, whereas I (and presumably the BoD) believed we should raise funds *after* good news after a rise in the share price, but typically still at a discount.

In fact it played out as I hoped: we got good news, near quadrupling the share price allowing us to raise at 6p. I'm quite hopeful of another multi-bagging from here and wouldn't be surprised to see another discounted raise from whatever that peak is, though hopefully not so severe - assuming we don't sell an asset. Perhaps a peak into the 40's and a raise in the 30's? It's going to depend on how iron ore prices evolve this year IMHO, and of course assuming Amapa comes good for us! ;-)

Ob.

A couple of other points that might be of general interest:

"Magnetic attraction: Investors and physical hedgers flock to iron ore: Metals special report" (June 2020)
https://www.spglobal.com/platts/plattscontent/_assets/_files/en/specialreports/metals/iron-ore-finance.pdf
===[
Another odd feature of the iron ore
market is that aside from rare
occasions, its derivative forward curve
is almost always backwardated. The
producer source believes this reflects
the rapid scalability of potential
additional supply. “Given the speed to
market for new supply, traders are
assuming that upward price moves
would be met with offers rapidly; [unlike
other commodities] the cheapest way to
store iron ore is in the ground.”
...
One of the newest areas of investment
research is concerned with utilizing
non-price data to develop systematic
trading strategies. This approach, which
often incorporates artificial intelligence
and machine learning, is well suited to
commodity markets because there is
usually a plethora of supply and demand
data. An example of a strategy in this
vein could be using satellite data to
quantitatively measure visible iron ore
inventory at points of production
(mines), transportation (ports) and
end-users (steel mills) and calculating
an investment signal based on this
unique data set.
]===

Not sure @tomcat. I believe this is only related to labour liabilities.

Cheers for sharing @EyeGuy. Interesting read so far!

"Magnetic attraction: Investors and physical hedgers flock to iron ore: Metals special report" (June 2020)
https://www.spglobal.com/platts/plattscontent/_assets/_files/en/specialreports/metals/iron-ore-finance.pdf
===[
Historically, most market participants
gained exposure to iron ore through
buying the stock of metals and mining
companies. There are some
difficulties that arise by taking this
path. Only a few companies are
focused on iron ore due to the high
costs associated with producing it.
These companies are not pure-play
iron ore equities, with the percentage
dedicated to iron ranging from 30% to
60% of their businesses.
]===

It's interesting that in the short term if Amapa is successful investors here will have more like upwards of 90% exposure to iron ore. :-)

https://www.jusbrasil.com.br/processos/101150396/processo-n-0000432-6820165080209-do-trt-8

I'm not going to quote anything other than my take on the ruling which I find quite interesting: if you sell a company, and the buyer is unable to make a success of it you remain liable for any labour liabilities outstanding at the time you sold. The reason is to prevent fraud. See the ruling for the details! :-)

Lol @Dallas!

@munchbox The news which may land next week is related to Amapa, but not commencement of ore shipping...

@tomcat "using the $2.1m cln for the most of it..." I meant to question what you meant by this. We don't get any cash when the CLN is converted into shares - our debt is reduced.

@tomcat. I think it's always useful to examine both sides of the coin. Switching my deerstalker for something a little more cynical I'd say that if we do determine that the CLN holders were partly responsible for suppressing our share price this week by forward selling, then perhaps they are doing so in the hope they get issued $3.5m more around a similar or lower price?

The pros to the are obvious and not particularly risky, given the nature of the agreement. In terms of the cons it does mean that if they keep forward selling their CLN around 12-13p and the share price shoots up spectacularly beyond their control just before the next $3.5m is issued (it should be issued *after* news + re-rate, not before!) they may find themselves losing out on £2.1m they could have converted at 12p and sold at a much higher price had they not suppressed last week, and presumably any other times to come, and additionally they may not be called upon at the $3.5m stage if found out.

If they are a friendly bunch and have the blessing of our BoD (I'm sure @Bannor wouldn't put it past them! LoL) then the suppression gamble/agreement might be too tempting to resist, but on their heads be it if the market sees through their suppression attempt, or does so blindly, and smashes any resistance.

@tomcat If they did forward sell, do you believe it will be Monday we'll find out? Or do you think it will be later in the week?

Switching back to my deerstalker I remain hopeful it's all nice and straightforward with nothing underhand at play! As that never happens on AIM does it? ;-)

Ob.

"@Ivy. I agree, we do appear to be walking a thin line at the moment, trying to optimise dilution vs potential growth!"

Sorry that might not have been very clear. We had plenty of opportunity this week to raise a million or so which would no doubt have satisfied your concerns, but I believe as I presume our BoD believe that we'll be able to raise that, and then some at much higher share price when (they believe when, I believe *if*) Amapa comes good.

Ob.

@Ivy. I agree, we do appear to be walking a thin line at the moment, trying to optimise dilution vs potential growth!

@tomcat - you are right, I divided by 8 not 10. b) is possible, but I got the impression that a) was more likely.

Great to share research - I like being wrong perhaps more so than I like being right! :-)

Could be a surge on Monday...

"Brazilian judge shuts down Vale complex due to coronavirus concerns" (JUNE 5, 2020 )
https://uk.reuters.com/article/us-health-coronavirus-brazil-vale-sa/brazilian-judge-shuts-down-vale-complex-due-to-coronavirus-concerns-idUSKBN23C34K
===[
A Brazilian judge ordered the closure of a series of mines operated by mining company Vale SA over coronavirus concerns, labor prosecutors said on Friday, a development that puts more than 10% of the firm’s iron ore output offline and will likely send jitters through the global iron ore market.
]===

I can see your side of the coin @Ivy, and this is good discussion, especially if you manage to change my view, or me yours. It is true that everything I am saying is predicated on Amapa coming good over the next few months. And by coming good I mean shipping ore and all preconditions for us owning 20% met. But even if it doesn't come good on 2-3 month timescales it's better to have the CLN repayments spread out to April than due in September IMHO, to allow more time for Amapa to come good.

If it does come good then the CLN will likely be converted every month rather than us having to find the cash. My understanding of yesterday's RNS is that the first half of the CLN will have been repaid over 8 months by August, and we've agreed that the second half can also be repaid over 8 months (1st September to 1st April). That's about £270k per month. If below 12p then I would say it's slowly slowly goodbye EMH shares (currently worth around £3.5m)

On revenue flow. We have repayments from DEV coming in over the next 4 months with interest.

However, if that ore gets flowing I think it's very likely the market will start to value the Amapa project potentially into the $100m's at today's iron ore prices and when we get 20% of that we are looking at our share price re-rating accordingly. It matters not a jot whether any of the sale of iron ore revenues comes directly to us - it's the resale value of our 20% that will contribute to our market cap.

@Kiran put it well last week:

"Transformational cycle of Cadence Minerals" (29/05/2020)
https://ukinvestormagazine.co.uk/transformational-cycle-of-cadence-minerals/
===[
“This is a huge step change for Cadence,” says Cadence CEO Kiran Morzaria.

“Our range of lithium and iron ore investments continue to add value, but once settlement is finalized with our creditors, Cadence will own 27% of Amapá, with options to acquire up to 49%. Our EBITDA forecasts will deliver a material change to current valuation metrics for our company.”
]===

Even if Amapa is viewed by the market to be worth only $50m, and only contributing $10m to our market cap, it would still make sense for us to take our holding to 27% for $3.5m (through dilution if necessary). Though I personally think we'll be looking at that "material change to current valuation metrics", potentially as soon as next week...

Sometimes you just get lucky :-)

Ob.

Cheers @Dallas! Well reminded @tomcat. @Ivy I think you are missing the point I'm getting at. If Amapa comes good for us over the next few months our share price should re-rate, but it wouldn't re-rate so much if it thought a placing was imminent to repay the CLN *and* raise $3.5m in the same period. Assuming this logic is correct (remember AIM is weird and it might very not be! Lol) any dilution to existing holders should be less, and IMHO consequently outweighs this marginal cost to KDNC/gain to the CLN holder for this deferment. So overall existing holders benefit from the move to April 2021 - of course they may have fully converted long by then anyway if Amapa comes good and we re-rate...

Although not directly relevant to the above explanation I should point out that dilution isn't nailed on. It's also possible we sell an asset or take out another loan, which may or may not rile up some on here. lol.

Ob.

LoL. Decipher