Member Info for observer842

I'm not sure which one you are referring to @tomcat, so many figures floating around! I'm still slightly surprised at our apparent conclusion that Indo will be funding the equity element of the CapEx. It makes sense to me. I can't see why else the split would be 27%:73%. But why no mention by our BoD?

And not forgetting they also have $49m of debt due to be repaid from eventual profits.

I just looked up the corporate presentation to make sure I got the $49m figure correct and noticed it says:

"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%)."

How does that stack up?

Back to the drawing board! lol.

So by investing $3.5m for 7% of PBA it is valued at $50m. And it apparently has $49m coming to it from DEV at some point in the future, perhaps the reasoning behind its valuation?

I think I'll stop there. Any thoughts on how the $49m fits into your scenario @tomcat?

USD:BRL = 5.49 (Google)
Iron Ore 62% spot = $85.50 (Reuters)
Capesize (180Mt) likely less than <$10,000 a day (anyone got a good source for the China - Brazil 80-90 day round trip route?)

The most interesting is the continued increase to the USD:BRL making the project increasingly attractive on the world stage.

As for paying for Amapa. As @tomcat noted and we recently discovered from RNS's and the JRP, the project has unexpectedly been allowed to move forward without us contributing anything - it's even less risky to us than it was, and yet we can take our 20% whenever we want - something those posting here didn't realise. As to raising the $3.5m to take us from 20% to 27%, this could be many months off by which time the market could be seeing regular shipments of iron ore significantly improving sentiment here and our share price. And of course if BCN announce an upgrade to their 35ktpa plans that could also kick our SP where the sun don't shine. lol. Here's hoping! :-)

Did anyone else notice an updated Yangibana map appeared this week - Tuesday going by the timestamp in the annotation.

https://www.cadenceminerals.com/projects/yangibana-rare-earth-project-2/

Search google for: what is share price resistance?

Here is the first hit which is a half decent read: https://finance.zacks.com/causes-stock-price-resistance-2757.html

There is something about the historic debt repayment schedule in the JRP, and I think in the appendix, but you'll have to squint like you've never squinted before ;-)

Good point @Barksy! I'll let them off ;-)

Cheers @Barksy! I wonder where they are going to get all their lithium from to meet the demand upsurge they trumpet early in the presentation? I can't think why they haven't updated their presentation to change the name of their 30% JV holder from REM to KDNC ;-)

@Bannor. I think on balance it seems that you and @tomcat are probably right, which is very good news for us as it implies that the Indo-KDNC JV agreement is such that we are bound to contribute $6m in return for 27% of PBA and Indo are bound to contribute $24m in return for 73% of PBA. This $27.5m would be considered the equity element of the CapEx with the $85m the debt element.

This seems about right to me as the $6m and $24m contributions would imply a share distribution of 20%:80%, but since we have been doing a lot of the work we get 27%. Or may be it's because their contribution is a loan? or some other (logical!) explanation. Who knows? Point being for a fully funded operation our 27% is not diluted, and could in fact be increased to 49.9% if Indo want to sell some of their 73% to raise funds for their $24m contribution, and we exercise our right of first refusal .:-))))

Ob.

@Frankie. Perhaps many long term holders do believe that the current BoD can deliver, more than those who don't. I do. It doesn't take many of those who have their doubts (and of course I have some) to derisk more than they would if they didn't on a rising share to sharply put a halt to the rise if sufficient new investors don't come on board to take up their sold shares.

I wonder if our JV agreement with Sino is available if we look hard enough?

Sort of - just different valuations and assignment of where the raised funds go (to Indo or PBA) :-)

By the way, with what I'm suggesting you wouldn't actually have to issue new shares in the company, you could easily rejig the ownership of shares without issuing new ones according to the final distribution of shares which would have occurred if new shares had been issued. Assuming all parties are happy with this approach. @Kiran - please clarify! lol.

should read: "they (potentially) raise"

I'd personally like to think Indo are obliged to loan $27.5m to DEV (DIP finance 2), which then makes what you and @tomcat are suggesting much more likely than what I am suggesting - they raise this through selling *their* shares in PBA - no new shares are issued.

@Bannor - message to you below.

If PBA issued new shares in a mini $3.5m placement to take us from 20% to 27% the post placing valuation of PBA would be:

Initially we have 20 shares of a company with 100 shares.

Following the placing we would have

20+x shares of a company with 100+x shares.

We know that the final percentage is:

20+x / 100 +x = 0.27

Therefore x can be deduced:

20 + x = 0.27 * (100 + x)
20 + x = 27 + 0.27x
x - 0.27x = 27 - 20

0.73x = 7

x = 9.589

This is how many new shares our $3.5m would have bought valuing the company post placing at:

3.5m * 109.589 / 9.589 = $40m on the nose.

That's further away from $50m than I thought.

The $24m calculation would then be:

27% * $40m / $64m = 16.875%

16.875% + $24m / $64m = 54.375%

which is further away from 50% than the previous calculation - so perhaps the shares are in escrow or are simply transferred from IndoSino to us.

@Bannor what you suggest is pretty much what @tomcat is suggesting, and I'm open to. Just that this coincidence with 50% is nagging me, and it's usual to issue shares when bringing new investors in at the project level. But in this instance it is complicated! Perhaps Indo *want* to loan DEV $27.5m themselves rather than through PBA, or perhaps the agreement obliges them to? We don't know.

@swinger - I'm of the opinion that this share is hugely undervalued, but many long term holders have been burnt quite hard over the years, including me, and just don't believe that the current BoD can deliver. If we rolled back the clock and imagined this was playing out for the first time under different management several years ago it's not inconceivable that we would be valued near $100m. This is what makes it a steal at current prices IMHO, we are betting against sentiment rather than pure risk to reward logic. Sentiment changes, you saw it starting to change on the run up to double figures, but it's got a long way to go until most are in the blue and we can release the shackles of the past. That's always the danger of going for long shots - you are bound to see more failures than wins (pretty much by definition), just that the wins might be a 10x bagger or more! :-)

I thought I'd check the calculation now whilst it's on my mind. The scenario is that PBA is valued at $50m and they do a placing to raise $24m. This would value the company at $74m, meaning the number of shares in issue goes from say 100 to:

74/50 = 148

If we didn't join in we would now have 27 shares out of 148 meaning we would own:

27 / 148 = 18% of the company.

If it was us that invested the $24m then the new 48 shares would go to us meaning our number of shares would increase to:

27 + 48 = 75

and we would own:

75 / 148 = 50%

of the company post share issue (placing). Seems consistent with what I arrived at last night. All is well with the world. But I could still be wrong, perhaps in my initial assumption, that's usually where you mess up! :-)

Ob.

lol @tomcat. It depends on whether new shares are issued in PBA or not. With regards to the $3.5m investment I assumed not to keep it simple. You might imagine that our 7% of shares are kept in escrow, only realisable to us following the $3.5m investment in PBA. If it's not done like that, and instead it's done as a mini placement of sorts by issuing new shares then the implied post placement value of the company is not $50m, but something else (I might get my calculator out later) to see what exactly - it'll be close to $50m though.

This might help (or hinder!) your understanding of the difference. Imagine I had a company with assets worth $1000. If I sold the company to you for $1000, the company would still be worth $1000 yet I would own none of it, and you would own 100% of it. However, if instead I allowed you to invest your $1000 pounds into my company, I would double the number of shares in issue so that you had 50% and I had 50%. The company would now be worth $2000 pounds (my assets worth $1000 + your $1000), with your share having a valuation of $1000, and my share a valuation of $1000. i.e. we both have the correct value of company post placing.

I hope that makes sense! Of course I may have messed up my calculation last night so I'll double check. lol. It wouldn't surprise me. :-)

Ob.

@swinger: "One question is it 30 to 40 million net to KDNC? Or is it 27 percent of that?" It's net to DEV (DEV Mineração S.A.). DEV is the owner of the Amapá iron project. Our JV company PBA (Pedra Branca Alliance Pte Ltd) will own 99.9% of DEV after certain preconditions have been met. We (KDNC) currently own 0% of PBA. At some point hopefully soon we will own 20% after certain preconditions have been met (we've already raised the finance for this), and then several months from that point, perhaps as much as 6 months, a year even, we aim to hold 27% by contributing a further $3.5m to the project, likely raised from either a Sale of Asset or a placing, after further preconditions have been met. We also have first right of refusal to increase our stake to 49% in the Amapá Project - through increasing our holding from 27% in PBA, should IndoSino (our JV partners) seek further investors or an investment in PBA.

If you've got the time and the inclination you might want to look back through my posts - my research on Amapa didn't really get going until after the end of August announcement.

Ob.

Coincidence @tomcat? If our $3.5m for 7% of PBA values PBA at $50m, if the additional $24m equity specified in DIP Finance 2 (+ the $3.5m = $27.5m) were raised by issuing shares in PBA, if we didn't take part our 27% in PBA would be diluted to:

27% * $50m / $74m = 18%

However, if we fully exercised our first right of refusal, and this is where the coincidence comes in (or not if you believe as I am starting to the agreement has been designed with this in mind) and contribute the full $24m it would take our shareholding to:

18% + $24m / $74m = 50%

i.e. an extra $24m would approximately double our holding to the maximum permissible (49.9%) of a project potentially worth billions. :-)))

Even if we don't manage to raise that by a decent Sale of Asset it's likely that once the project is sufficiently derisked: banks dealt with and shipping the stock piles for starters, the market will start to see $$$ and a $50m KDNC market cap (ideally over a $100m!) should see us bring an institutional investor onboard for not too much dilution. I suppose even if the market cap of KDNC were only $24m an argument could be made to 100% dilute (bringing them in as a 50:50 partner) if it meant our stake in PBA could be doubled? On balance I think I'd rather we didn't do that, but others might disagree. An institution coming in at the <30% level would be just about palatable to me if it meant our holding in PBA could be increased from 27% to 49.9%. But ideally we'd realise a healthy SoA for $25m - they both know (BCN & HAS) the longer we wait and the larger the company grows the more we will be able to demand and hold out. I'd say it's in their interest to see us gone now whilst we are still a minnow, BCN more so. ;-)

Ob.