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It's a quagmire @dallas. Very optimistically the answer to your question (which I don't believe, but might answer why the $60m has gone down when I expected it to go up) is that the $30-40M is net profit after $49 repayment to Indo. i.e in the January presentation the BoD might have estimated that the net profit from shipping the iron ore sales had increased from $60 million to $79-89m. This isn't too unreasonable given that USD:BRL had increased, iron ore prices had increased and shipping costs had reduced since August 2019. I don't believe it, but it's in the mix now - no taking it back. lol.

Possibly, but then it doesn't match with page 8 of the presentation: "Cadence invests US$6 million in Pedra Branca Alliance then IndoSino assigns US$49 million debt to NewCo (Pedra Branca Alliance) and (Ownership IndoSino 73% / Cadence 27%)."

lol. Replace "rigging" with "rejigging"

Certainly an interesting take, but it seems too much in IndoSino favour to me - but perhaps I'm being too optimistic? I can't see how Indo could have both full benefit of the sale of the iron ore stock piles and still expect to receive $49m from someone?

But I can see a scenario whereby the $24m equity in the presentation is an investment in PBA by Sino realising their 73% of PBA. PBA would then have $24m + $3.5m = $27.5m of cash which it can loan to DEV as per DIP Finance B.

I can also see that it would be PBA that benefits from the sale of the iron ore stock piles in return for PBA owing Indo $49m.

Which ties in with what you were suggesting - of the $30-40m (was $60m in August! not sure what happened there!?) net profit to PBA of the stockpile sales, Sino might receive 73% of this (us the other 27%). But the $30-$40m is over 24 months, and the $24m looks like it was required by year end. I can see a scenario whereby PBA receives say $24m from the stock pile on the right timescales and this is split virtually $17.5m to Indo and $6.5m KDNC. This means Indo would be required to raise $6.5m to meet their $24m obligation and this might be achieved by an appropriate redistribution of shares between KDNC and Indo within PBA. If the profit received from the stock piles were less, then additional external funding would be required, and if it were significantly more it might be that Indo's share would be greater than $24m so no rigging of share ownership.

Just thinking allowed. At least I think it is. Aloud! ;-)

I think I see where you are coming from. Are you suggesting that Indo currently owns 0% of PBA? (You mean 73% by the way, not 77%)

That's a good point @Dallas, though perhaps not quite as you spelt out.

Where does the profits from the sale of the iron ore stock piles come into this? Perhaps that's why it's phrased as: "Should Indo Sino seek further investors or an investment in PBA", as it's not clear it will be required if sufficient funds are realised from the sale of the iron ore stock piles? The JRP is envisaging $27.5m in DIP Finance B from the investors (PBA, although there is doubt whether that is just Sino), and perhaps the plan was by the time of DIP Finance B, we'd have realised $24m in profit from the iron ore stock piles? But if not, then we could revert to "Should Indo Sino seek" and back to what we've been discussing for days now. lol.

That's a good clear and credible explanation @Bannor! which nudges us distinctly towards Scenario 1, but reworded from:

"a. The $49m owed from DEV to Indo will be changed to be owed from DEV to PBA to Indo."
to
"a. The $49m owed from DEV to Indo will be changed to be owed from PBA to Indo."

It does however mean as JV owners in PBA we will be partly responsible for that debt - which in practice will come from proceeds of the project.

So unless there are any objections, that concludes the meaning of the $49m. Going once... Lol.

Now, about that $24m. Dallas? Lol!

Ob.

lol. I'm guessing me switching seamlessly between Indo and Sino isn't helping those less familiar with what we are talking about follow the conversation! IndoSino is our JV partner in PBA.

@tomcat - I think we get confused when talking about this $49m when using the words debt and credit as there are too many companies! lol. The way I see it, at some point in the past Indo provided $49m of funds to DEV as a loan, which means DEV now owes Sino $49m. Once certain milestones have concluded this $49m will no longer be owed from DEV to Sino, but from DEV to PBA. I'll have to check, but it's also likely it will be subject to the (30% was it?) haircut on historical debt.

Do you agree with the above so far?

Whether or not PBA then will return this solely to Sino (Scenario 1) rather than to the owners of PBA (scenario 2) is uncertain. I think scenario 2 is marginally more likely.

I agree @Bannor, what you suggest could be the case. I'd been thinking about it from the angle that although we can't go above 49.9% it doesn't necessarily mean that Sino couldn't go below 50.1%. i.e. I was thinking that the agreement may allow for a situation where we have say 49.9%, Sino has 25% and another has 25% (the off-taker?). But perhaps that's not the point, perhaps there is only 22.9% up for grabs resulting in either KDNC 49.9% Sino 50.1%, or KDNC 27%, off-taker 22.9%, Sino 50.1%.

But you are right - enough for the moment, until more data comes to light, or someone has a brain wave! lol.

Here's another way of thinking about it. Once we are at a point where we own 27% of the Joint Venture company PBA, if the company is obliged to pay for something, whatever that may be, we are obliged to contribute 27% of that payment. If it turns out it is PBA that is responsible for the $24m equity element of the funding package, this means that Sino will be responsible for $17.52m of that and KDNC $6.48m. If Sino are unable to raise this money any other way, they will either possibly sell *their* shares in PBA, or arrange for more shares to be issued - I don't think the actual mechanics would matter too much to us, but they may! The point being if it is scenario 2 we are looking at (PBA responsible for $24m equity element), then we will be on the hook for at least $6.48m if we want to keep our 27%. But of course, scenario 1 might be the one in play, in which case we keep 27% regardless...

Sino means bell in Portuguese...

It's a miss translation. It's Indo Sino

"why you think PBA could choose to issue shares?"

"why you think PBA can't choose to issue shares?"

It's certainly uncertain @Bannor! Also, the $27.5m in DIP finance 2 (I am assuming this is $24 + $3.5m) is a minimum equity portion accompanying the minimum $85m debt of DIP finance 3 according to the JRP. Out of interest do you have any evidence or reasoning why you think PBA could choose to issue shares? We'd (likely) have normal right to partake (JV agreements tend to be written this way), but in fact have a full right of first refusal (to 49.9%). Seems fair enough to me.

USD:BRL = 5.53 (google)

Some background to the recent movement:

"As oil slumps, investors reinforce short commodity currency bets" (APRIL 23, 2020)
https://uk.reuters.com/article/us-health-coronavirus-currencies/as-oil-slumps-investors-reinforce-short-commodity-currency-bets-idUKKCN2253BY
===[
Among the worst hit currencies have been the Brazilian real, which is down 36% year-to-date, and the Mexican peso, which has lost 30%. The currencies of iron ore exporter Australia, dairy exporter New Zealand and crude producer Canada have all fallen between 9% and 10%.
]===

@tomcat. I personally wouldn't value the company at DIP 1 @ $2.5m / 20% = $12.5m as the $2.5m isn't being used to buy equity in the company - it is used for other purposes. More likely the 20:80 was a fairly arbitrary starting position (or potentially back calculated from the outcome of future requirements), based on negotiations of what we could bring to the table. In my scenario 2, I see the $49 million credit to PBA as placing a reasonable value on the company of approximately $50m which is then used to determine how much percentage our $3.5m (essentially) buys from Sino's 80% (7%).

Cheers for your thoughts @Bannor & @tomcat, there's certainly more than one way of looking at this! And just when I thought I'd got it straight in my head as well. lol.

From my point of view I think it's likely to be an either or with at least two scenarios we've identified:

Scenario 1:
a. The $49m owed from DEV to Indo will be changed to be owed from DEV to PBA to Indo.
b. Indo will be responsible for finding $24m of equity.

Scenario 2:
a. The $49m owed from DEV to Indo will be changed to be owed from DEV to PBA.
b. PBA will be responsible for finding $24m of equity.

It seems like you two are edging towards scenario 1, whilst I'm edging towards scenario 2, but certainly not discounting scenario 1.

Luckily it's the journey to the answer that is often more important than the answer itself. Right!? lol!!

Ob.

Attempting once again to piece together this puzzle...

From the JRP it appears Indo Sino has $49.14m worth of credit against the debtor (DEV) and until certain aspects are resolved it has claim over the iron ore stock piles. Also from the JRP, once DIP Finance B has been completed Indo Sino will waive its guarantee (over the stock piles) and this credit will be on par with the other unsecured creditors. From our corporate presentation it seems that once DIP Finance B has been completed that this debt will be assigned to PBA the JV company we will own 27% of at that time. The $49.14m appears to value PBA consistently with how much additional percentage our $3.5m increases our holding by at the time: 20% to 27%.

What isn't clear is which entity is then responsible for the equity element of the project financing which, according to the corporate presentation is expected towards the end of the year ($24m), and whether this plus our $3.5m is indeed the total mentioned in the JRP DIP Finance B of $27.5m?

Either Indo Sino is responsible for this additional $24m or PBA is responsible. Perhaps it doesn't matter to us at this stage? I doubt knowing the answer would change much the strength of my conviction. Although investigating this conundrum eventually led me to realise that the $49m I've previously scratched my head over is destined to PBA after all (27% us, potentially 49.9%!) :-)))

Ob.

It just occurred to me that if it is the case that the $49m of historic debt owed to Indo Sino is assigned to PBA and this historic debt becomes part of the general lump of historic debt to be repaid (as suggested per the JRP) then it could be we see cash flow to PBA, and onto KDNC much sooner than we might have previously been expecting. Just a thought!