RE: Moving Up14 Mar 2019 00:51
Let's say that once full funding has been achieved, but construction has yet to begin, that the market values the company according to a nice round market cap of $500m (to go easy on my calculator!). As mentioned yesterday, to raise the full $200m in equity required to unlock the remainder of the debt portion of the funding, issuing 525m shares at the current minimum raise price of around 29p would value the company at:
(525m + 135m) * $0.38 = $250m
i.e. optimistically the share price might double from the raise price of 29p to around 58p to reach the $500m valuation: a single bag return.
If instead the raise were at 58p, then half the number of new shares would be required to be issued:
(262.5m + 135m) * $0.76 = $300m
To reach the $500m valuation the share price would this time rise by less than double:
($500m / $300m) * 58p = 97p
Perhaps this is obvious, but the point I'm getting at is that in order to get to a £1.50 share price in the short term (assuming no changes to the current funding, production plan, off-take agreements etc, i.e. all things being equal**) the equity raise needs to be as high as possible - perhaps around a pound. Additionally, for this $500m valuation scenario, the lower the issue price, the more percentage gains to be had: but double being the maximum gain if the raise is at the minimum issue price of 29p.
My take is that by valuing the company today at around half the minimum issue price, the market appears to be making the bet that funding isn't on the near horizon, or that the BoD will approach shareholders to ask permission to double the number of shares they can issue without offering to existing shareholders first from 500m to 1B.
Additionally, that $500m valuation is an unsubstantiated nice round number to make the maths easy. In practice this is likely to be the critical factor in what determines the raise price. $500m would give the BoD a strong hand, but I doubt the current market would support a valuation this large for Sonora. But it might as the Lithium winds change.
** But all things are never equal. I suspect we'll see an increase from 35ktpa to 50ktpa in the near term as it becomes apparent quality lithium supply will fall short of ever increasing battery demand unless big money (majors) enter the sector.
All IMHO. DYOR ;-)
Ob.
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