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By the way @tomcat, I couldn't have arrived at this scenario without looking through what you were suggesting! I'm not saying it's definitely this one, but it does seem pretty simple enough to be! There was something arbitrary about the other scenarios that didn't sit well with me. This scenario removes that. :-)

"I'd envisage the shares to be escrowed pending completion of DIP finance B. They are probably all escrowed now, except perhaps 1 owned by Indo. Other mechanisms are available."

I wrote that a bit quick - what I means is that I envisage the shares to be released from escrow as each milestone is crossed in return for relevant funds. e.g. at DIP A 45% of the shares are released (20% to KDNC and 25% to Indo), and at DIP B the remaining 55% of the shares are released (7% to KDNC and up to 48% to Indo depending on their ability to meet their funding obligations.)

Ob.

@tomcat - that's not what the calculations are showing. The price per share for our 7% would be the same for Indo's 25% to 73%. By definition.

I'd envisage the shares to be escrowed pending completion of DIP finance B. They are probably all escrowed now, except perhaps 1 owned by Indo. Other mechanisms are available.

I can't actually believe how simple my new scenario is. LoL! :-)))

One way of justifying Indo's 25% initial holding of PBA at DIP Finance A is to relate it to the value of their historic debt of $49.14m as a fraction of a very conservative after tax NPV of the project, which in this case would be $200m. There may be other justifications, but this is one that just sprung to mind...

@tomcat. Perhaps the question we should be asking is when we own 20% of PBA how much of PBA does Indo own at that point such that later on when we invest $3.5m to take our holding to 27% they invest $24m to take their final holding to 73%?

Should be simple enough to figure out:

If there are 100 shares in the company initially and we own 20 of these and IndoSino own S of those, then we know:

S + T = 73

where T are the new shares issued to Sino at the same price per share as KDNC's new shares as part of DIP Finance B. i.e.:

$3.5m/7 = $24m / T

which is simply:

T = 48.

i.e. when we own 20% of the company Indo owns (73 - 48) = 25%.

At DIP Finance B we contribute $3.5m taking our holding from 20% to 27% and Indo contribute $24m taking their holding from 25% to 73%. And as we have discussed previously, if they can't or don't want to raise their $24m contribution they have the option to offer to others, in particular to us who have a first right of refusal to take our percentage to 49.9%.

How does that work to you? I don't think I've ever seen it stated anywhere that Indo own 80% of PBA when we own 20%, so it certainly seems a plausible scenario.

Ob.

This is starting to take on the feel of a good who done it. I've found another data point whilst checking @tomcat's thoughts.

From the JRP:
===[
4.5.2 INDO SINO. Once you check the precedent condition of the Dip Financing B, Indo Sino will waive its guarantee and the your credit will be classified as unsecured, being paid under the same conditions as other unsecured creditors.
]===
Note the 4.5.2. should be 4.5.3.

Given what we've deduced earlier I'm taking that to mean that the $49.14m Indo Sino provided years ago will show in the books of PBA as $49.14m debt eventually payable by DEV (with a 30% haircut?) alongside the other unsecured creditors - presumably via the reverse auctions and repayment schedules mentioned in the JRP? Of course PBA will be expecting much more than this $49.14m to eventually flow to it - potentially billions. :-)

Does that new understanding change your thoughts at all @tomcat?

@Bannor: "..... as I've said they can't 'dilute' our 27% without our agreement - I don't think that's the answer.....".

It's a good point, and assuming that it's right, and I can't make @tomcat's calculations work so we aren't diluted, then presumably if the project needed to raise equity as part of the CapEx fund raise (In a ratio of say equity 1 to debt 3 or 4) we'd pretty much have no choice but to agree to equity dilution somewhere, be that dilution in the Amapa project, in DEV or in PBA. Or do you have a different scenario in mind for the raising of the equity element - which is presumably what DIP Finance A&B are about - C being about the debt element, in the light of how the $49.14m seems to fit into this?

Ob.

If my calculations agree with what @tomcat is suggesting, then I think he's nailed it.

Fair enough @tomcat. Perhaps I'm jumping ahead of my calculations! lol

Indeed @Bannor - that's one element which didn't sit well with previous scenarios. I think we are honing in on the solution. I need to give it more thought, but in combination with what I wrote below, I think it's going to turn out to be PBA that is on the hook for the additional $24m of equity - which could mean dilution of our 27% if we don't stand our ground.

I haven't gone through your calculations in detail but the way I'm now understanding this is that the top level mechanics of the arrangement is:

The $49.14m owed to Sino is used to set the value of PBA at DIP Finance B, resulting in Sino owning 73% of PBA in return for this $49.14m of debt owed to them from DEV now sitting on the books of PBA rather than being owed to Sino. i.e. PBA starts its life off significantly in debt - which is good from a tax point of view. But no-one is owed this debt. i.e. eventual cash flow from DEV to PBA is distributed according to the percentage ownership at the time. Additionally monies released from the iron ore stock piles likely stays in DEV - to be reinvested in the Amapa project.

This seems to fit together pretty well with the RNS's, the JRP and the corporate presentation, and seems a bit obvious in hindsight. ahem...

I'll see what my calculator has to say about the details later on. In the meantime you all might want to take a look at the second table in the appendix of the JRP. :-))))

Ob.

I think you might have nailed it @tomcat! Can you confirm that in this scenario the proceeds of the iron ore stay with the Amapa project - DEV, which PBA will own 99.9% of?

"Approval of Judicial Restructuring Plan Paves the way for the Restart of the Amapá Iron Ore Project." (30 August 2019)
http://irservices.netbuilder.com/ir/cadence/newsArticle.php?ST=REM&id=2887382
===[
It is estimated that at steady-state production of 5.3 Mt of iron ore and utilising a 62% Fe price of US$61 / tonne (27/08/2019 price Fe 62% - US$90 / tonne) Amapá will have an average :
o US$266 million per annum of net revenue after shipping,
o US$90 million per annum in mine, processing and transport costs
o US$48 million per annum in environmental, sales and G&A expenses
o EBITDA of US$136 million per annum.
]===

I think we've been misled. $136m isn't what I'm seeing as the average at *steady-state production*. Are you seeing what I'm seeing @Dallas (don't forget to divide by 4 to convert from BRL to USD). :-)))

@dallas. "So if Indo are getting their 49M back what have they put up for their 73% lol?" - I suspect $24m as part of DIP Finance B. Others may disagree. I may disagree in time. lol.

One way of picturing it is Indo have paid $49m for the ore at the port, which means if Indo sell the ore and profit from it the $49m is a moot point. However, if it's PBA that profits from the sale of the ore they will be required to, eventually, return $49m to Indo. The JRP is in place (DIP Finance B) to make sure that at least $27.5m of this profit is ploughed into the Amapa project and not just to pay of Indo's $49m. Does that make it any clearer?

In answer to your other point, I think the presentation is trying to make the distinction that Indo has legal claim over the stockpiles at the port.

Lol @Dallas. "meaning DEV owes us US$49M.", that's not the understanding that we appear to be bubbling out. The consensus, although @tomcat begs to differ and has something to add later, is that it means PBA owes Indo $49m, in return PBA can profit from the sale of the ore - and then eventually return the $49m to Indo. This arrangement is preferable for Indo, the alternative being their $49m remaining part of the historical debt with an associated haircut.

By the way, I've been able to pretty much fully read appendix 2 now, and it answers a few questions I've had in the past :-)))