Member Info for okenia

You too Lotto.

I normally think of those PE turnarounds in a different order. Think of the big buy-outs and turnarounds of things like (was it Boots?). PE came in with a wad of cash, bought a struggling company. They then sorted it out and either re-listed it or sold it on. The key bit there is the 'E' bit where that CASH was used to gain control of the company. Since it's private equity its done as cash not shares. With the PERE model it's somewhat different. Yes they have said they will want to control the asset as opposed to just passively investing in it, as they need to sort stuff which means control. But this can be done as a paper exercise for the bulk of the transaction, in principle. Let's say there's a £100m value (when working properly) mine that needs some TLC and a bit of working capital (say a few million) to allow a turnaround, but the vendors don't have the skill/willingness to sort it. Put it into a SPV, let PERE have 20-30%% of that (as shares) for being the operator, squirt a bit of cash into it from some other investors or debt providers at the SPV valuation, and then get things sorted. Once done you've added value to the SPV and that can be realised in some way - trade sale or whatever - and PERE walks away with 20%. The SPV acts to bring together the three bits you need for any mine - the asset, the skills, and the cash. It's 'reward' reflects what it brings to the table, which is the skill set to bring the deal together and to then execute the plan. If I had a loss-making mine that could be made profitable and be worth £100m, but I needed someone to turn it around, I'd give away a portion of the asset in return for the rest actually being worth something.

LPEQ?

I said a bit back that I'd had a really useful round-table (read: lunch...) with Ivan Bebek of Auryn Resources - about eight of us plus 2x from the company. A couple of hours of Ivan and Michael explaining the broader context of the company and the strategy - something that really didn't come across from reading the bland RNSes. Incredibly useful 2 hrs and transformed my understanding and view of the company, and yet didn't release anything that shouldn't be released. At an appropriate point I do think PERE would benefit from a similar group chat with us investors, just to give the colour of the strategy and potential direction of travel. However I think we need the first deal details, first - and sadly they can't really talk about that for many reasons until it is announced.

Indeed, and as I say in my opening sentence and elsewhere! "- PERE is on the standard list, so no AIM-specific fees (NOMAD etc) and if you look at other standard list micro caps you can really run these for peanuts in G&A. ..... And technically PERE couldn't because they are Standard List not AIM, and there is a rule that limits annual share issuance to 10% without a whole new prospectus and effectively re-admission." etc My point being that investor's expectations of a £3m mcap natural resource company will be heavily influenced by their experiences on AIM, because that's where most sub-£10m NR companies live.

And one final pair of thoughts. I promise I'll shut up after this! I've always struggled to see how the small deal-making, investing companies on AIM actually add value. You raise cash, you buy something. So what? How does that asset you've just bought increase in value over future years and give a return to shareholders? I understand it in the context of a junior explorer, where the 'value add' is the geotechnical skill and the discovery drilling - e.g. MTR/MOD who went from about £2m for licences and drilling costs to a 25Mt copper discovery in Botswana that is clearly worth many times the sum they expended on it. There's a skill that the team brought to the table and made money from. [Likewise you can lose money this way if you spend millions of quid and fail to find material amounts of copper or whatever]. PERE are bringing a similar value-add but in the producing mine sphere, which is the ability to assemble a technical team that can go in and sort a mine out, adding value that way. Yes there's execution risk - we won't know they can do it until they've done it, but the track record of the players involved gives you confidence. You're backing two things here - the track record and capability of the management team and their network, and the strategy. Next stop, execution. Now I'm going to end on a slight criticism. I suspect that when DL/PB sit down with the institutions here and in Vancouver they "get it" as to the PERE strategy. However I don't think the average UK-based retail investor does, especially if they spend their time wading through the usual AIM cesspit that many of view as a fun pastime. The PERE story is different to the usual one you see on AIM, but the natural assumption will be that it isn't (and hence understandable assumptions in the market as to what will happen next). I think some work on communicating that message to those of us at the bottom of the food chain wouldn't go amiss, and maybe some more explicit thought as to branding and website comms. [Eg if you view yourself as mining consultancy and turnaround specialists (or whatever), then make sure that 'elevator pitch' message is the first thing people read on the website.] The liquidity and SP drift of PERE (although fine from my viewpoint as I'm picking stock up cheaply) does tell you that retail investors don't quite "get it" yet with PERE, and this is something that they could perhaps do a bit more sweat on. OK, time for a coffee.

The key players here are N American (PB, DL et al) and the likes of Peter B are used to playing in the 'big mine' space. [That's another reason for knowing the scale of what they want to do - Peter B doesn't get out of bed for tiddly we assets!]. DL's background is fund management (more PE than listed capital markets) and he grew and then sold a £500m fund to RAB. The Behre Dolbear link is important as well, making these guys steeped in all things mining and how to make them work. So the investment pitch here goes something like this. These guys know what it takes to run a mine, and more importantly how to take a sub-optimal one and turn it around. They've got the know-how and contacts to loom at an asset that's not performing well and know what to do to turn it around. Peter B knows everyone; if a mine needs a certain issue to be addressed, he'll know the best people to parachute in to solve that. It's that turn-around skill set where the value in PERE will come from. And there's plenty of under-performing assets, especially at a time of low commodity prices. A struggling mine isn't an asset, it's a liability. So there is a little niche in the N American mining space for highly specialised technical teams that are brought together to sort out difficult mines. The general pitch is "hey, you've got problems with this mine, let us sort it out and you'll then make loads more money from it. And our fee will be a 20% stake in the mine.". [or whatever]. If I owned a £100m mine that was struggling to even break even, I'd be happy to give a bit of it away in return for getting the thing sorted. In some respects this is no different to the "corporate turn around" management consultancy stories where a team goes and sorts out a struggling retailer or whatever that lacks the know-how to dig themselves out of whatever hole they are in. And often the issue isn't asset, or cash, just the know-how. So to the mine vendor the value of the turn-around story is view from their end of the telescope. How much will it make a difference to their mine. Doing the deal as a percent-of-the-asset fee is genius as it builds in performance management - if the turnaround doesn't work, then it's 20% of not a very valuable thing. It only makes money for PERE if that 20% is now made valuable - and if the vendors remaining 80% is now valuable they're not going to worry about having lost a bit! Or to put it another way, 80% of a profitable mine is better than 100% of a loss-making one. We don't really see this sort of approach for London-listed companies - it's much more a N American / Canadian story. But when you start to think of the strategy in that Dragon's Den, management consultancy mindset, then you can see how they can 'acquire assets' without having to raise large amounts of equity-based cash.

- PERE is on the standard list, so no AIM-specific fees (NOMAD etc) and if you look at other standard list micro caps you can really run these for peanuts in G&A. The Directors are not starting to take fees until the first deal is pulled off, and there's a good wad of cash in the pot. At the current burn rate (office rent, travel for DD, consultancy and legals etc) I'd be surprised if the monthly burn was much higher than ~ £50kpm. Their wad of cash is going to last a long time at that rate, because it's only to run the office and allow the DD. It's not for acquisitions. - When you're a £3m mcap AIM company the odds of you being able to raise even as little as a million quid via a bucket shop placing are slim to non-existent. And technically PERE couldn't because they are Standard List not AIM, and there is a rule that limits annual share issuance to 10% without a whole new prospectus and effectively re-admission. Technically then you can absolutely guarantee that you won't wake one morning to find a surprise RNS of a big discounted placing, because they're not allowed to do that due to that rule. But even if they were still on AIM and could, it would make no difference. The scale is wrong. - Scale. This is the critical thing. They're looking at producing (or near producing) assets and want to have a controlling stake. You know how many producing mines you can buy for £1m? Norra lot. You're talking £50m-£200m for even an entry-level producing asset in mining (as opposed to onshore oil and gas, where the 'mine' is a hole with a pump at the top). PERE are going for assets (see the roadshow doc for example) that are of a scale that will dwarf the current mcap. We'll come to how that might be funded later on, but for now you can see how impossible it would be for a £3m mcap standard list shell to raise enough cash via a discounted placing with Beauforts to buy a £50m mcap producer. Impossible. Fortunately that's not the plan. So the take-home from that is that they've got plenty of cash to keep the office ticking over while they do the DD, and they're not splashing cash on directors fees while that happens [as an aside, that's a big positive from a governance view for me - how often have we seen shells raise cash, sit around doing nothing, and the yet the board still pockets a fat fee every month while being idle? PERE clearly isn't like that]. And the scale of a producing / near production hard rock mine is such that it's literally impossible that a £3m shell could buy one by doing a discounted placing to the usual suspects. It ain't going to happen unless some fundamental laws of economics change. That then gets to the final and most obvious push-back question - if they ain't gonna get assets by the "do placing, buy asset for cash" route then how on earth are they going to? I think the clue to this is to see where the key players in this are coming from and

John - I know where you're coming from here but I think you're wrong in this case. Yes we've all been around the block enough times on AIM to have got used to the cycle of ramp, placing, cash burn, rinse and repeat. If you're sloshing around in the cesspit that is sub £10m mcap AIM natural resource stocks then it's pretty hard to find one that doesn't do that. It's a natural assumption therefore that PERE (£3m mcap at the moment) will do just the same. I this case, however, I'm fairly confident that assumption would be wrong. [For the record, I continue to build my stake so am very much eating what I kill here.] I'll do a separate post where I'll try and collect together my own opinions on where I think PERE will go, based on what we know so far from the road show, prospectus and general 'mood music' from the company. And it's also important to remember that the people running the show are N American and are perhaps working in a way more familiar to that investing space and not to London micro caps.

"does anyone posting on this BB over the last 48 hours actually own any RGM shares or are ever likely to" Correct. It's just non-invested 'curious and interested' posters. Keeps them off the street I suppose. Laters!

Who was the daft Scottish character in Dad's Army who used to run around all the time in a blind panic yelling "we're doooooomed, I tell you we're all dooooooomed...!" ? Nothing a cup of herbal tea and a sit down in a quiet room with Alan Bennett on the wireless wouldn't solve.

Zumore - "So i personally think it would be utter madness if RGM ... take 100% operational control of the Rosa coal mine." You're basically saying you don't want Regency to do anything. Not to spend any money. Not to take partial or full control of an asset. Nothing. You've gone into total bunny-in-the-headlights mode. So rather than having a hyperventilating panic attack, a simple question: what exactly *do* you want RGM to do? Imagine you're a new NED on the board - what's the 100 Days Plan you'd push for? If you're not the solution you're the precipitate ...

There are a few good 'uns out there

Once the first deal is announced, would it be useful for PERE to arrange an investor lunch so as to explain the deal and strategy in greater detail, and answer investor Q's? I'm conscious investors have been very patient over 2017 with Pembridge, and this would be a nice way to both engage with loyal shareholders as well as saying 'thanks' for their patience while things are put into place. Who'd be up for that? I'll happily raise the idea with the company.

ChazC. If you're a fund manager you expect to directly meet management as part of your DD. Possibly also visit the factory / asset / whatever. Retail investors should do the same unless they want to be fed information by third parties. Now most larger companies you can't get to reach out to the CEO - you just have to take the word of analysts etc who meet them. That's dis-empowering. My solution is to focus on small caps where I can meet the management. (Eg day before yesterday I had two hours over lunch - fillet steak saffron rice and courgette flower tempura if you're interested - yes I'm a foodie - with Ivan Bebek CEO of TSX-listed Auryn Resources. A superb use of two hours as we waded thru geophys and drill results and it allowed me to go away understanding much better the rns data, and the company strategy and end-game options. ) This sort of legwork is how I add value to my investing. All my major positions (ARS PERE NTOG etc) in individual companies are accompanied by repeated and ongoing meetings with management. If you follow me on Twitter you'll see a picture from Wed where I am drinking with Steve the geo from AsiaMet (who got several hours of grilling). So yes I feel have a better view of what PERE and other companies are doing because I burn the leather and take the time to ask questions. There's no replacement for looking management in the eye and asking questions - all the more so at the smallcap end when there are so many spivs and lifestyle companies to sift thru. I have a very healthy skepticism (/cynicism) about the vast majority of AIM / smallcap CEOs. But there are a few good ones (yes I appreciate I may be a minority viewpoint on NTOG but the reality versus the social media story are different). At the moment PERE is small enough that management is happy to engage with retail shareholders one on one. Give it a go - reach out. If they don't value you, why should you invest in them?

All I know is DL is running around very energetically at the moment - almost impossible to get a slot in his diary (even with the bribe of lunch!). Which augers well. As to when, well we'll be the first to know ...

You keep personalising it and saying the money has been given (personally) to SM. could you be a little more considered in your choice of words? As to the $1.6m acquisition cost for Rosa from Whitaker, it makes good sense. It's a slow vend-in. Instead of needing to buy it outright at the start, the payments are spread over time. Which means you can pay them off from production revenue. Once Rosa is in production that $1.6m repayment schedule is likely covered. What RGM provided was (like Steelmin / RRR) essentially bridge financing prior to production.

"Though of course RGM may have been giving Moscicki monthly payments but he he never made the payments. " Why do you say the cash went to SM (personally) as opposed to the JV vehicle (CMC)?

No.

Is your RNS feed broken booboo?