I've just tried downloading the JRP again. Seems to still be working.
Assuming Indo own 100% now and 80% when we own 20% I think @Bannor's explanation is the simplest: the JV agreement will include a clause related to transfer of shares in PBA from Indo to KDNC: when the first set of conditions are met PBA receives $2.5m and this is lent to DEV (DIP Finance A) and then another 7% when the second set of conditions are met and we have contributed $3.5m to PBA. When the further $24m is raised, the full $27.5m is then lent to DEV (DIP Finance B).
According to page 36 of the JRP, the Revenue net of shipping and the EBITDA for the project based on $61/t is as follows:
2019: 0 0
2020: R$148 R$115
2021: R$148 R$115
2022: R$386 R$200
2023: R$760 R$502
2024: R$1388 R$938
2025: R$1292 R$832
2026: R$1292 R$816
2027: R$1292 R$800
2028: R$1292 R$783
2029: R$1292 R$765
2030: R$1292 R$749
2031: R$1292 R$727
2032: R$1292 R$707
2033: R$1292 R$688
2034: R$1292 R$665
2035: R$230 R$91
There may be transcription errors - please point them out!
We don't know what BRL:USD they have used, but at last summer it was at or below around 4 and had been for many years. On the date of our announcement on 30 August 2019, the exchange rate was 4.15
It is claimed in the RNS of that date:
"Approval of Judicial Restructuring Plan Paves the way for the Restart of the Amapá Iron Ore Project." (30 August 2019)
At full production and using US$61 per tonne of 62% Fe Amapá is forecast to have:
o an average net revenue after shipping of US$266 million per annum,
o and an average EBITDA of US$136 million per annum.
From the above table, I'd say it was fair to use the value of R$1292 in years 2025-2034 for the net revenue after shipping at full production, which expressed in dollars using an exchange rate of 4 is $323m, not $266m. It appears that they have used the average over the years 2022-2035 which is R$1120 and with an exchange rate of 4.15 is $270m
As for the EBITDA, I'd say it is fair to use the same years 2025 to 2034 for full production which averages to: R$753, and using an exchange rate of 4 results in an average EBITDA at full production of $188m 38% higher than that stated in the RNS ($136m). Using the average over the years 2022-2035 results in R$662 which with an exchange rate of 4.15 is $160m, still higher than the reported $136m. Using the average over the years 2019-2035 results in an average of R$558 which using an exchange rate of 4.15 is $134.5m - about right.
So in summary our BoD appear to have inadvertently played down the prospects of the project by stating that the EBITDA of $136m per annum is an average at full production when in fact it appears to be the average over the full 17 years of the project. Using an exchange rate of 4 the peak EBITDA is in year 2024 of $234.5m with a more appropriate "at full production" average of $188m.
I wondered if the disparity might be due to a different price per tonne being used, but the price per tonne in the JRP appears to be: total revenue: R$1463. Divide this by 5.3Mt and 4 gives = $69/t which is about right given most is 65% iron not 62% iron.
By the way, increasing USD to BRL (5.59!) is good for this project, but not relevant for the above.
Thanks @Bannor, your clear explanation is much appreciated: the JRP and JV agreement are two separate but connected agreements. In my latest suggestion of Indo owning 25% of PBA when we owned 20% I envisaged the step to take us to 73% and 27% respectively happening simultaneously using the same price per share. I don't think there is any particular reasoning why this has to be in lock-step though - it could occur in two stages as suggested by @tomcat - we contribute $3.5m to take our holding to 27% and some time later $24m is raised by Sino which takes their holding to 73%, or adjusted appropriately if they seek help.
This sequence of events could fit into the RNS if the wording of: "On completion of Cadence’s investment (not including the first right of refusal) our joint venture partner Indo Sino will own 73% of JV Co." is interpreted to mean once we have fully finished investing, and assuming we haven't used our first right of refusal, Sino will own 73% of PBA.
I've taken a look through the RNS and it's reasonably clear when we own 20% and 27%, but only ever spelt out once (above) what Sino will own and when.
By the way, I'm just putting forward the case for the defence of this scenario - it doesn't necessarily mean I'm fully behind it. Personally I still think there is a good chance that in order for us to hold onto our 27% we'll have to contribute to the $24m equity raise or risk being diluted one way or another, and in the light of your research last night it seems that if Sino can't raise the necessary funds, we'll be on the hook: "or not exercise its right of first refusal under the terms of the Agreement".
I was going to end there, but I might have just spotted something when wondering how much we'll be on the hook for:
In this scenario, Sino is expected to invest $24m to take their holding from 25% to 73%. i.e. 48% of the company is up for grabs for $24m. It's interesting to note because of "or not exercise its right of first refusal" we would be on the hook for approximately half of this $24m (22.9% = $11.45) if Sino couldn't, or didn't want to fund it. In fact it wouldn't surprise me if the agreement and calculations are such that when we own 27% of PBA, Sino own 27% too - meaning we'd both be equally on the hook for $12m each, with Sino (effectively) having a first right of refusal over ours.
Even after the events I wonder if we'll ever know...? LoL.
Some good points @Bannor! Especially "or not exercise its right of first refusal under the terms of the Agreement". I take your point about the timelines, though uncharacteristically unlike you, you realise you are putting more faith in the BoD and their latest corporate presentation than the JRP which indicates the $27.5m is due on completion of the second set of prerequisites - which we are currently interpreting as our $3.5m plus the $24m equity on page 15 of the presentation? As you are, @tomcat too envisages these as being separated in time: DIP Finance B(1) - $3.5m and DIP Finance B(2) - $24m, which would fit closer with the corporate presentation but might require us to contribute funds if we wanted to hold onto 27% if percentage ownerships changed at DIPB1 then DIPB2. Whereas my latest scenario sees both these happening pretty much at the same time from the point of view of both the JV and JRP, but in practice we'd likely raise our $3.5m first, followed some time later by Indo raising their $24m (with our first right of refusal to perhaps mandatory take us to 49.9% if Sino requires it), perhaps by several months as indicated in the corporate presentation. But from the point of view of the JRP and % ownerships this would be a simultaneous transaction.
Assuming the BoD aren't trying to be economical with the truth for whatever reason (e.g., for their own benefit or for the benefit of the company), I suspect they've tried to simplify the explanation of the JV and key aspects of the JRP to shareholders, but have only ended up confusing! I wonder if we'll ever get to see the JV agreement? I suspect not.
Some good chat today - unless anyone has further revelations perhaps I can move on to that EBITDA underestimate tomorrow...? :-)
Indeed @tomcat. Previously I was more fond of the idea of issuing new shares, but the idea of using escrow/treasury shares seemed to fit better and simpler with this new way of thinking (Indo 25%, KDNC 20% @ DIP Finance A). Are you coming round to the possibility of this?
It also removes the necessity for us to contribute any more than $3.5m for us to maintain at least 27% of PBA. Interestingly, all of the DIP financing is returned early on (table 3 of the JRP). i.e DIP A + B is loaned from PBA to DEV, and returned within 5-6 years or so.
As to whether I actually believe this is the one? Probably not. lol.
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.)
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.
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?