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. :-))))
"Approval of Judicial Restructuring Plan Paves the way for the Restart of the Amapá Iron Ore Project." (30 August 2019)
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). :-)))
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?
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.
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%)."
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! ;-)
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."
"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!
@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.